Working Paper: NBER ID: w16242
Authors: Kenneth A. Snowden
Abstract: Covered mortgage bonds have been used successfully in Europe for two centuries, but failed in the U.S. when introduced as farm mortgage debentures in the 1880s. Using firm-level data and a sample of loans made by one Kansas mortgage company, I find that debenture programs grew out of established loan brokerage operations and were used to fund mortgages that were difficult to broker because of size, term or risk characteristics. Debentures broadened access to the interregional mortgage market and facilitated an expansion of western farm mortgage debt before the innovation failed in the mortgage crisis of the 1890s.
Keywords: mortgage bonds; farm mortgage; debentures; financial innovation; mortgage crisis
JEL Codes: G28; G29; N1; N11; N2; N21; N5; N51; R51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of covered mortgage bonds (G21) | broader access to the interregional mortgage market (G21) |
| introduction of covered mortgage bonds (G21) | expansion of western farm mortgage debt (G21) |
| debentures (G12) | rapid expansion of the mortgage market (G21) |
| debentures (G12) | financial distress during the mortgage crisis of the 1890s (G21) |