Finance

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays

Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays
Journal of Money, Credit and Banking, forthcoming.

Sewin Chan, Andrew Haughwout, Andrew Hayashi and Wilbert van der Klaauw
06/01/2015

The mortgage default decision is part of a complex household credit management problem. We examine how factors affecting mortgage default spill over to other credit markets. As home equity turns negative, homeowners default on mortgages and HELOCs at higher rates, whereas they prioritize repaying credit cards and auto loans. Larger unused credit card limits intensify the preservation of credit cards over housing debt. Although mortgage non-recourse statutes increase default on all types of housing debt, they reduce credit card defaults. Foreclosure delays increase default rates for both housing and non-housing debts. Our analysis highlights the interconnectedness of debt repayment decisions.

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust

Do Homeowners Mark to Market? A Comparison of Self-reported and Market-based Home Value Estimates During the Housing Boom and Bust
Real Estate Economics, forthcoming.

Sewin Chan, Sam Dastrup & Ingrid Gould Ellen
06/01/2015

This paper examines homeowners’ self-reported values in the American Housing Survey and the Health and Retirement Study from the start of the recent housing price run-ups through recent price declines. We compare zip code level market-based estimates of housing prices to those derived from homeowners’ self-reported values. We show that there are systematic differences which vary with market conditions and the amount of equity owners hold in their homes. When prices have fallen, homeowners systematically state that their homes are worth more than market estimates suggest, and homeowners with little or no equity in their homes state values above the market estimates to a greater degree. Over time, homeowners appear to adjust their assessments to be more in line with past market trends, but only slowly. Our results suggest that underwater borrowers are likely to understate their losses and either may not be aware that their mortgages are underwater or underestimate the degree to which they are.

How Mortgage Finance Affects the Urban Landscape

How Mortgage Finance Affects the Urban Landscape
In Handbook of Regional and Urban Economics, Volume 5B, edited by Gilles Duranton, J. Vernon Henderson and William C. Strange. United Kingdom: North Holland, 2015.

Sewin Chan, Andrew Haughwout & Joseph Tracy
06/01/2015

This chapter considers the structure of mortgage finance in the United States and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, and income, and over the life cycle, with particular attention to the role of recent innovations such as nonprime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance.

Dividends and Investment: Evidence of Heterogeneous Firm Behavior

Dividends and Investment: Evidence of Heterogeneous Firm Behavior
Revise & Resubmit ~ Public Finance Review

Nirupama S. Rao (with Aparna Mathur, Michael S. Strain and Stan A. Veuger)
02/26/2015

This paper investigates the relationship between dividend payouts and corporate investment. We find significant heterogeneity in the relationship across firms — heterogeneity that helps reconcile competing results in the literature. Drawing on financial filing data from Compustat, we first broadly replicate the statistically significant negative relationship estimated by Auerbach and Hassett (2003). We show that this relationship does not hold if the variation is restricted to within-firm only. Our null results suggest a relatively precise zero estimate for the mean firm. Next we investigate heterogeneity in the relationship between dividends and investment.  Using quantile regression methods, we find that this negative relationship is concentrated at the top of dividends distribution: only firms from the 70th percentile and above exhibit a strongly negative relationship, and it is these firms that drive the negative estimates of pooled OLS regressions reported in prior work.

Mortgage Foreclosures and the Changing Mix of Crime in Micro-neighborhoods

Mortgage Foreclosures and the Changing Mix of Crime in Micro-neighborhoods
Journal of Research in Crime and Delinquency, Published online before print February 20, 2015. doi: 10.1177/0022427815572633

Johanna Lacoe and Ingrid Gould Ellen
02/20/2015

Objectives: The main objectives of the study are to estimate the impact of mortgage foreclosures on the location of criminal activity within a blockface. Drawing on routine activity theory, disorder theory, and social disorganization theory, the study explores potential mechanisms that link foreclosures to crime.

Methods: To estimate the relationship between foreclosures and localized crime, we use detailed foreclosure and crime data at the blockface level in Chicago and a difference-in-difference estimation strategy. Results: Overall, mortgage foreclosures increase crime on blockfaces. Foreclosures have a larger impact on crime that occurs inside residences than on crime in the street. The impact of foreclosures on crime location varies by crime type (violent, property, and public order crime).

Conclusions: The evidence supports the three main theoretical mechanisms that link foreclosure activity to local crime. The investigation of the relationship by crime location suggests that foreclosures change the relative attractiveness of indoor and outdoor locations for crime commission on the blockface.

Measuring School Finance Equity using School Finance Statistics

Measuring School Finance Equity using School Finance Statistics
Encyclopedia of Education Economics and Finance, editors Dominic Brewer and Lawrence Picus, Sage, CA

Leanna Stiefel
09/16/2014

This entry briefly outlines the origin of school finance statistics and describes the Berne-Stiefel framework for identifying the values of school finance equity.  It then introduces various measures of horizontal, vertical, and taxpayer equity and concludes by highlighting school finance research that utilizes these measures.

Credit is Not a Right [REVISED]

Credit is Not a Right [REVISED]
Forthcoming in volume edited by Tom Sorell and Luis Cabrera: Microfinance, Rights, and Global Justice. Cambridge University Press.

Gershman, John and Jonathan Morduch
09/15/2014

Muhammad Yunus, the microcredit pioneer, has proposed that access to credit should be a human right. We approach the question by drawing on fieldwork and empirical scholarship in political science and economics. Evidence shows that access to credit may be powerful for some people some of the time, but it is not powerful for everyone all of the time, and in some cases it can do damage. Yunus’s claim for the power of credit access has yet to be widely verified, and most rigorous studies find microcredit impacts that fall far short of the kinds of empirical assertions on which his proposal rests. We discuss ways that expanding the domain of rights can diminish the power of existing rights, and we argue for a right to non-discrimination in credit access, rather than a right to credit access itself.

 

Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes

Pathways After Default: What Happens to Distressed Mortgage Borrowers and Their Homes
Journal of Real Estate Finance and Economics 48(2), February 2014.

Sewin Chan, Vicki Been, Andrew Haughwout and Claudia Sharygin
02/01/2014

We use a detailed dataset of seriously delinquent mortgages to examine the dynamic process of mortgage default—from initial delinquency and default to final resolution of the loan and disposition of the property. We estimate a two-stage competing risk hazard model to assess the factors associated with post-default outcomes, including whether a borrower receives a legal notice of foreclosure. In particular, we focus on a borrower’s ability to avoid a foreclosure auction by getting a modification, by refinancing the loan, or by selling the property. We find that the outcomes of the foreclosure process are significantly related to: loan characteristics including the borrower’s credit history, current loan-to-value and the presence of a junior lien; the borrower’s post-default payment behavior, including the borrower’s participation in foreclosure counseling; neighborhood characteristics such as foreclosure rates, recent house price depreciation and median income; and the borrower’s race and ethnicity.

Is Micro Too Small? Microcredit vs. SME Finance

Is Micro Too Small? Microcredit vs. SME Finance
World Development 43: 288-297. 2013.

Bauchet, Jonathan and Jonathan Morduch
12/15/2013

Microcredit and SME finance are often pitched as alternative strategies to create employment opportunities in low-income communities. So far, though, little is known about how employment patterns compare. We integrate evidence from three surveys to show that, compared to Bangladeshi microcredit customers, typical SME employees in Bangladesh have more education and professional skills, and live in households that are notably less poor. SME jobs also require long work weeks, clashing with family responsibilities. The evidence from Bangladesh rejects the idea that SME finance more efficiently creates jobs for the population currently served by microcredit.

Pension Obligation Bonds and Government Spending

Pension Obligation Bonds and Government Spending
Public Budgeting and Finance, 33(4):43-65

Thad Calabrese and Todd Ely
10/29/2013

We examine the use of pension obligation bonds (POBs) as a financing strategy to address the effects of unfunded pension liabilities on government operating budgets. POBs are publicly marketed as money-saving mechanisms that reduce pension system payments while allowing for increased spending on other government priorities. We review general POB usage and examine whether POBs altered school district spending patterns in Oregon and Indiana. Our results indicate that districts issuing POBs have not increased educational spending relative to other districts. Because POBs cost money to issue and manage, decision makers are encouraged to consider annual budgetary effects prior to issuance.

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