Collateral Uncertainty and the Limits of Shadow-Bank Mortgage Lending
Abstract
Shadow banks' share of U.S. mortgage lending has risen substantially, while their expansion has varied widely across local markets. We study whether uncertainty about property values shapes this geographic pattern by making mortgages costlier to sell. Using mortgage and property data, we find that shadow banks have lower local market shares and expand more slowly in higher-uncertainty areas, even among conventional loans below the conforming loan limit. Application data link this pattern to lenders' decisions: denial rates rise more with uncertainty for shadow banks than for banks, with the difference concentrated in refinancing. Consistent with a role for balance-sheet capacity, denial responses are stronger among more sale-dependent shadow banks. We also find evidence consistent with higher distribution costs in higher-uncertainty markets: less use of appraisal alternatives, greater repurchase risk and longer times to sale. Collateral uncertainty constrains shadow-bank expansion and preserves a local role for balance-sheet lending.
Citation
Amaral, Francisco, Jason Blunier, and Gianmarco Ruzzier. "Collateral Uncertainty and the Limits of Shadow-Bank Mortgage Lending." Working paper, October 2026.