Financial reform and mortgage lending by systemically important financial institutions

Abstract

We use proprietary transaction-level data from Intercontinental Exchange to examine how the Dodd–Frank Wall Street Reform and Consumer Protection Act (DFA) affected mortgage risk-taking by the six largest US financial institutions (SIFIs). Following DFA, these banks originated fewer mortgages, with lower average loan-to-value (LTV) ratios, and fewer high-LTV mortgages compared to other lenders. Our findings suggest that DFA curtailed risk taking among SIFIs but coincided with increased high-LTV lending by non-SIFIs, indicating a redistribution of risk to less regulated institutions. We provide the first transaction-level evidence linking DFA to measurable shifts in mortgage risk.