Matching in the Mortgage Market (Chapter 5)

This chapter focuses on the search and matching process in the mortgage market. Most people need a mortgage to buy a home but many of them cannot obtain one. Indeed, it is often more difficult to obtain a mortgage from the bank than it is to find a desired house that is for sale. This depends on both the limited monetary capacity of buyers, and constraints and conditions set by the bank. The simple model developed in this chapter clearly shows a “vicious circle” in the mortgage market: people ask for the granting of more mortgages, and banks grant more mortgages when their profits increase; however, the increase in the banks’ profits implies more stringent conditions for obtaining a mortgage.