Industrial Organisation of the US Residential Mortgage Market

Abstract

The US single-family residential mortgage market stands at roughly $11 trillion, representing about 21% of all US credit market debt outstanding. This important segment of US credit markets has markedly evolved over the past 30 years. Following the Great Depression, the US residential mortgage market maintained a vertically integrated structure, whereby federally insured depository institutions predominately originated, serviced, and invested in residential mortgages. Then, during the 1970s and 1980s, government-sponsored mortgage securitisation increasingly took hold and ushered in a new dis-integrated market structure that increasingly allowed for the separation of residential mortgage origination and servicing from investment. Significant technological and regulatory changes during the 1990s spurred tremendous growth in both government-sponsored and ‘private-label’ securitisation in the 2000s. However, the subprime mortgage crisis of 2007 impaired securitisation, making the future industrial organisation of the US single-family residential mortgage market uncertain and inextricably linked to forthcoming public policy choices.