Finance

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
Forthcoming ~ 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.

Federal Budget Reform: Lessons from State and Local Governments.

Federal Budget Reform: Lessons from State and Local Governments.
Pathways to Fiscal Reform in the United States, pp. 135-162. John W. Diamond and George R. Zodrow (Eds.). The MIT Press.

Rose, Shanna and Daniel L. Smith.
12/26/2014

As “laboratories of democracy,” U.S. state and local governments have experimented with a wide variety of fiscal institutions designed to constrain public expenditures and indebtedness, yielding a myriad of institutional arrangements the federal government might consider — or is already considering — adopting to improve its long-term fiscal outlook. A large empirical literature exploits this institutional variation within and across state and local governments to estimate the effects of fiscal constraints on spending, taxes, deficits, and debt. This paper, which draws heavily on Rose (2010), synthesizes the literature, summarizing lessons for the federal government about the effectiveness of various institutions in promoting fiscal sustainability. 

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.

What Can We Learn from Impact Assessments?

What Can We Learn from Impact Assessments?
“What Can We Learn from Impact Assessments?” Chapter 4 in Practical Guide to Impact Assessments of Microinsurance. Edited by Ralf Rademacher and Katja Roth. Microinsurance Network. 2014.

Bauchet, Jonathan and Jonathan Morduch and Shamika Ravi
09/01/2014

This chapter introduces the basics of quantitative impact assessments. The context is microinsurance, but the lessons apply more broadly. The chapter covers seletion bias, control groups, randomization, statistical power, internal validity, and external validity.

Banks and Microbanks

Banks and Microbanks
Journal of Financial Services Research (2014) 46:1–53. DOI 10.1007/s10693-013-0177-z

Robert Cull, Asli Demirgüç-Kunt, and Jonathan Morduch
08/01/2014

We combine two datasets to examine whether the presence of banks affects the profitability and outreach of microfinance institutions.We find evidence that competition matters. Greater bank penetration in the overall economy is associated with microbanks pushing toward poorer markets, as reflected in smaller average loans sizes and greater outreach to women. The evidence is particularly strong for microbanks relying on commercial-funding and using traditional bilateral lending contracts (rather than group lending methods favored by microfinance NGOs). We consider plausible alternative explanations for the correlations, including relationships that run through the nature of the regulatory environment and the structure of the banking environment, but we fail to find strong support for these alternative hypotheses.

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.

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