We propose a new conceptual framework for monetary policy transmission through shadow banks in the mortgage market that highlights the role of mortgage servicing in generating non-deposit funds for lending. We document that mortgage servicing acts as a natural hedge against interest rate shocks and dampens the effect of monetary policy on shadow bank mortgage lending. Higher interest rates reduce prepayment risk, increasing the collateral value of mortgage servicing assets and cashflow from servicing income. This enables shadow banks that are relatively more involved in servicing to obtain more funding. The mortgage servicing channel is weaker for traditional banks due to their reliance on deposit funding and the capital charge on mortgage servicing assets. Our estimates imply that the rising share of shadow banks in mortgage servicing has weakened the pass-through of monetary policy to aggregate mortgage lending.

Many governments impose household leverage limits at a national level, even when credit and housing market conditions vary substantially across locations. We explore the efficacy of loan-to-value (LTV) limits targeted towards specific neighborhoods as a macroprudential policy designed to curb house price growth. We combine administrative data from Taiwan covering the universe of all mortgage loans, personal income tax returns, a public database of geocoded housing transactions, and bank branch balance sheets. Applying a series of matched difference-in-differences and border difference-in-discontinuity designs, we find that leverage limits are effective at reducing house prices compared to alternative policy instruments such as transfer taxes. In response to a statutory tightening of the maximum LTV ratio to 60% from the standard 80% for mortgages on second homes, house prices decline by 6% in policy catchment areas relative to nearby neighborhoods not subject to LTV restrictions. However, we uncover two kinds of efficiency costs associated with place-based mortgage restrictions: (i) real commuting costs driven by homeowners sorting into neighborhoods where credit is easier to obtain, and (ii) mispricing, or "noise" costs, as banks and prospective homebuyers face incentives to obtain inflated appraisals to evade the limits.

We analyze a general equilibrium model of housing markets with investors, that is, with investment housing as an asset class. Rental yields and expected capital gains in a portfolio problem drive the decision to become a housing investor. We show that the presence of investors alter how housing markets react to macro shocks like monetary policy. Following negative shocks (e.g. interest tightening) investors cushion the fall in prices but amplify the effects on homeownership dynamics. However, there is asymmetric effects for positive shocks and in such case investors amplify prices but mitigate homeownership. Then we study policies to discourage investors. We find that such policies have a large impact on middle-class households and on the elderly.