Change and Progress in Contemporary Mortgage Markets

   (334 K)

Changes in political attitudes toward subsidizing mortgage loans and in technologies for transacting mortgage loans and for pooling and refinancing individual mortgage contracts threaten to remake the face of U.S. mortgage markets. This paper focuses on economic-efficiency benefits embodied in narrowed interest-rate spreads and on distributional effects for different market participants created by three categories of change: changing strategies for controlling implicit federal guarantees; continuing evolution in the character of mortgage-backed securities; and expanding electronic mortgage-application networks. It proves instructive to classify these effects further according to whether they are transitional or permanent in nature and whether they are technologically driven or filtered through the political process.The analysis emphasizes that technological change is reducing the controllability of aggregate subsidies associated with long standing patterns of providing implicit and explicit federal guarantees for the liabilities of important mortgage-market participants and discusses several proposals for bringing the market value of these guarantees back under administrative control.

Published: Kane, Edward J. "Change and Progress in Contemporary Mortgage Markets," Housing Finance Review, Vol. 3, July 1984, pp. 257-284.

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