Although most studies argue that expansive secondary markets for loan sales tend to enhance opportunities to manage risk, lower loan rates, and improve access to credit, other studies point to situations in which locally based credit providers remain important (e.g. relationship lending in the small business loan market). We consider a related set of issues in the context of home mortgage markets. Using census tract data from HMDA for 1994-2008, we estimate (i) the extent to which locally as opposed to globally active secondary markets increase access to credit, (ii) how this relationship differs for low versus high-risk segments of the market, and (iii) how these relationships have changed over time as information technology has become more advanced. Throughout, we measure access to credit using origination rates, and also median loan size requested which is assumed to be inversely related to loan rates. Our primary models are estimated separately for each sample year both by OLS and two-stage least squares. For the later, lagged county population is used to instrument for the local scale of secondary market activity. Findings for the conforming sized sector indicate that locally active secondary markets increased access to credit in the 1990s, but evidence of such effects largely disappears in the 2000s. Moreover, these patterns were most pronounced in high-unemployment and low income communities, locations likely perceived as high risk and also targeted by the 1992 GSE Act as underserved. In the non-conforming jumbo loan sized sector, the influence of the local scale of secondary market activity appears mixed: in no sample year are origination rates affected, but median loan size requested is substantively higher in markets with locally active secondary markets, and especially in the latter part of the 2000s. Based on these results, we argue that secondary markets (i) do mitigate risk and expand access to credit for the bulk of the mortgage market, (ii) that this is especially true in the highest risk segments of the market, and (iii) for the most idiosyncratic portions of the market, locally based credit providers remain important, analogous to behavior in the market for small business financing
