Concentration in Mortgage Markets: Government Sponsored Enterprise Exposure and Risk-Taking in Uncertain Times

When home prices threaten to decline, large mortgage investors can benefit from fostering new lending that boosts demand. We ask whether this benefit contributed to the growth in acquisitions of risky mortgages by the Government Sponsored Enterprises (GSEs) in the first half of 2007. We find that it helps explain the variation of this growth across regions, as well as regional house price and credit changes. The growth predicted by this benefit is on top of the acquisition growth caused by the exit of private-label securitizers. We conclude that the GSEs actively targeted their acquisitions to counter home-price declines. This paper was accepted by Camelia Kuhnen, finance. Supplemental Material: The data files are available at https://doi.org/10.1287/mnsc.2024.05912 .