Search Results
Journal Article
Determinants of automobile loan default and prepayment
The authors examine whether a borrower?s choice of automobile reveals information about future loan performance. They find that loans on most luxury automobiles have a higher probability of prepayment, while loans on most economy automobiles have a lower probability of default, even when holding traditional risk factors, such as income and credit score, constant.
Working Paper
Market-based loss mitigation practices for troubled mortgages following the financial crisis
The meltdown in residential real-estate prices that commenced in 2006 resulted in unprecedented mortgage delinquency rates. Until mid-2009, lenders and servicers pursued their own individual loss mitigation practices without being significantly influenced by government intervention. Using a unique dataset that precisely identifies loss mitigation actions, we study these methods?liquidation, repayment plans, loan modification, and refinancing?and analyze their effectiveness. We show that the majority of delinquent mortgages do not enter any loss mitigation program or become a part of ...
Journal Article
How do private firms use credit lines?
The authors find that firms that face higher upfront commitment fees, risk premium spreads or usage fees have smaller credit lines, while those with higher overdraft fees have larger ones. Firms with greater profit growth in the past have larger credit lines, while those with more internal funds or higher volatility in profit growth have smaller credit lines. The results for line utilization are quite similar.
Working Paper
Bankruptcy exemptions, credit history, and the mortgage market.
We develop and test a model of mortgage underwriting, with particular reference to the role of credit bureau scores. In our model scores are used in a standardized fashion, which reflects the prevalence of automated underwriting in industry practice. We show that our model has implications for the debate on the effect of personal bankruptcy exemptions on secured lending. Recent literature (Berkowitz and Hynes (1999), Lin and White (2001)) has developed conflicting theories?and found conflicting results?seeking to explain how exemptions affect the mortgage market. ; By contrast, our model ...
Working Paper
Policy Intervention in Debt Renegotiation: Evidence from the Home Affordable Modification Program
The main rationale for policy intervention in debt renegotiation is to enhance such activity when foreclosures are perceived to be inefficiently high. We examine the ability of the government to influence debt renegotiation by empirically evaluating the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries (servicers) with sizeable financial incentives to renegotiate mortgages. A difference-in-difference strategy that exploits variation in program eligibility criteria reveals that the program generated an overall increase in the intensity of ...
Working Paper
The role of securitization in mortgage renegotiation
We study the effects of securitization on renegotiation of distressed residential mortgages over the current financial crisis. Unlike prior studies, we employ unique data that directly observe lender renegotiation actions and cover more than 60% of the U.S. mortgage market. Exploiting within-servicer variation in these data, we find that bank-held loans are 26% to 36% more likely to be renegotiated than comparable securitized mortgages (4.2 to 5.7% in absolute terms). Also, modifications of bank-held loans are more efficient: conditional on a modification, bank-held loans have lower ...
Journal Article
The evolution of the subprime mortgage market
This paper describes subprime lending in the mortgage market and how it has evolved through time. Subprime lending has introduced a substantial amount of risk-based pricing into the mortgage market by creating a myriad of prices and product choices largely determined by borrower credit history (mortgage and rental payments, foreclosures and bankruptcies, and overall credit scores) and down payment requirements. Although subprime lending still differs from prime lending in many ways, much of the growth (at least in the securitized portion of the market) has come in the least-risky (A-) segment ...
Working Paper
Do financial counseling mandates improve mortgage choice and performance? Evidence from a legislative experiment
We explore the effects of mandatory third-party review of mortgage contracts on the terms, availability, and performance of mortgage credit. Our study is based on a legislative experiment in which the State of Illinois required ?high-risk? mortgage applicants acquiring or refinancing properties in 10 specific zip codes to submit loan offers from state-licensed lenders to review by HUD-certified financial counselors. We document that the legislation led to declines in both the supply of and demand for credit in the treated areas. Controlling for the salient characteristics of the remaining ...
Working Paper
Benefits of relationship banking: evidence from consumer credit markets
This paper empirically examines the benefits of relationship banking to banks, in the context of consumer credit markets. Using a unique panel dataset that contains comprehensive information about the relationships between a large bank and its credit card customers, we estimate the effects of relationship banking on the customers' default, attrition, and utilization behavior. We find that relationship accounts exhibit lower probabilities of default and attrition, and have higher utilization rates, compared to non-relationship accounts, ceteris paribus. Such effects become more pronounced with ...
Working Paper
Do consumers choose the right credit contracts?
A number of studies have pointed to various mistakes that consumers might make in their consumption-saving and financial decisions. We utilize a unique market experiment conducted by a large U.S. bank to assess how systematic and costly such mistakes are in practice. The bank offered consumers a choice between two credit card contracts, one with an annual fee but a lower interest rate and one with no annual fee but a higher interest rate. To minimize their total interest costs net of the fee, consumers expecting to borrow a sufficiently large amount should choose the contract with the fee, ...