Moral Hazard during the Housing Boom: Evidence from Private Mortgage Insurance

• 成果类型: Article
• 署名作者: Bhutta, Neil; Keys, Benjamin J.
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; University of Pennsylvania; National Bureau of Economic Research
• 刊物名称: REVIEW OF FINANCIAL STUDIES
• ISSN/ISSBN: 0893-9454
• DOI: 10.1093/rfs/hhab060
• 发表日期: 2022
• 页码: 771
• 关键词: agency costs

摘要

We provide novel evidence of misaligned incentives fueling a portion of the 2000s mortgage boom. We document that private mortgage insurance (PMI) companies expanded insurance issuance on high-risk mortgages purchased by Fannie Mae and Freddie Mac at the tail end of the housing boom, without changing pricing and despite knowledge of heightened housing risk. The expansion of PMI facilitated an unprecedented increase in Fannie and Freddie's risky purchases, extending the mortgage boom into 2007 and precipitating their collapse. We argue that this unraveling reflects a general moral hazard problem in insurance, coupled with misaligned incentives in the government-backed mortgage market.