An Altered U.S. Housing Finance System: Implications for Housing

42 Pages Posted: 28 Dec 2006 Last revised: 22 Apr 2021

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Date Written: July 1991


During the 1960s and 1970s, the U.S. government closely regulated the single-family housing finance system. The regulation manifested itself in a highly specialized system with four notable characteristics: portfolio restrictions against investments in corporate assets, tax inducements to invest in residential mortgages, prohibitions against investing in ARMS, and deposit rates ceilings. All were removed in the 1980s, and, not surprisingly, the housing finance system changed markedly. Between early 1982 and 1989, two-fifths of all new loans had adjustable, not fixed, rates, and savings and loans reduced their holdings of FRMs (both whole loans and mortgage pass-throughs) by 15 to 20 percent. Moreover, the fraction of conventional FRM originations that have been pooled into pass-throughs rose from less than one-twentieth before 1981 to over one-half after 1985. With the opportunity of borrowers to shift to lower coupon ARMs when rates rise and with the integration of the home mortgage market with capital markets generally, one would expect that the U.S. housing sector is now less sensitive to rising interest rates than it was in the 1960s and 1970s. Numerous studies support this expectation.

Suggested Citation

Hendershott, Patric H., An Altered U.S. Housing Finance System: Implications for Housing (July 1991). NBER Working Paper No. w3770, Available at SSRN:

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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