Higher Bank Capital Requirements and Mortgage Pricing: Evidence from the Counter-Cyclical Capital Buffer*

We identify the effects of the Basel III macroprudential tool Counter-Cyclical Capital Buffer on mortgage lending. Using the first dataset on responses from multiple banks to each household, we find no evidence of explicit rationing. But as the CCyB applied only to mortgages, banks with higher mortgage specialization or lower capital cushions raise prices by an extra eight basis points. Bank level data then show that this allows them to slow their mortgage growth and rebuild capital cushions. While market-wide mortgage growth did not slow down significantly, the composition of mortgage suppliers thus moved to previously less exposed banks.

Deficiency Judgments as a Mortgage Pricing Factor

The subject of the deficiency judgments has been poorly examined due to a lack of relevant data and the complexity of the issue. Some comprehensive studies have explored whether allowing deficiency judgments decreases the likelihood of strategic defaults in the U. S. mortgage market. Little, however, has been done to determine whether there is any direct correlation between legal standing allowing recourse and loan pricing. Hence, additional work regarding this subject is needed. This study seeks to fill this gap by exploring the impact of allowing deficiency judgments on mortgage pricing policy in various U. S. states. Seven distinctive mortgage types in two groups of states were compared. We conclude that there is no statistically significant difference between recourse and non-recourse states in terms of mortgage pricing, regardless of mortgage type.