Search Results
Working Paper
The impact of student loan debt on small business formation
Small businesses are the backbone of the U.S. economy and account for approximately one-half of the private-sector economy and 99% of all businesses. To start a small business, individuals need access to capital. Given the importance of an entrepreneur?s personal debt capacity in financing a startup business, student loan debt, which is difficult to discharge via bankruptcy, can have lasting effects and may have an impact on the ability of future small business owners to raise capital. This study examines the impact of the growth in student debt on net small business formation. We find a ...
Working Paper
Does Skin in the Game Align Incentives? The Case of CRE CLOs
This paper examines whether high levels of risk retention effectively align incentives in securitizations, using evidence from the $100 billion-plus commercial real estate collateralized loan obligation (CRE CLO) market. CRE CLO sponsors retain all equity and non–investment-grade tranches, far exceeding Dodd–Frank Act minimums. Despite this substantial retention, we find that security returns are driven in part by resolving distressed loans through par-value buyouts back to sponsor balance sheets, shifting losses outside the trust. Moreover, sponsors vertically integrated across servicing ...
Working Paper
Asymmetric Information and the Death of ABS CDOs
A key feature of the 2007 financial crisis is that for many securities trading had ceased; where trading did occur, market prices were well below intrinsic values, especially for ABS CDOs. One explanation is that information had been asymmetric, with sellers having better information than buyers. We first show the information advantages sellers had over buyers in both the issuance of CDOs and, through vertical integration, performance of the CDO collateral that could well have disrupted trading after the onset of the crisis. Using a ?workhorse" model for pricing securities under asymmetric ...
Working Paper
The cost of delay
In this study, we make use of a massive database of mortgage defaults to estimate REO liquidation timelines and time-related costs resulting from the recent post-crisis interventions in the mortgage market and the freezing of foreclosures due to ?robo-signing? revelations. The cost of delay, estimated by comparing today?s time-related costs to those before the start of the financial crisis, is eight percentage points, with enormous variation among states. While costs are estimated to be four percentage points higher in statutory foreclosure states, they are estimated to be 13 percentage ...
Conference Paper
The trust preferred CDO market : from start to (expected) finish
Working Paper
Designing loan modifications to address the mortgage crisis and the making home affordable program
Delinquencies on residential mortgages and home foreclosures have risen dramatically in the past couple of years. The mortgage losses triggered a broad-based financial crisis and severe recession, which, in turn, exacerbated the initial financial distress faced by homeowners. Although servicers increased their loss mitigation efforts as defaults began to mount, foreclosures continued to occur in cases where both the borrower and investor would be better off if such an outcome were avoided. The U.S. government has engaged in a number of initiatives to reduce such foreclosures. This paper ...
Working Paper
A cost-benefit analysis of judicial foreclosure delay and a preliminary look at new mortgage servicing rules
Since the start of the financial crisis, we have seen an extraordinary lengthening of foreclosure timelines, particularly in states that require judicial review to complete a foreclosure but also recently in nonjudicial states. Our analysis synthesizes findings from several lines of research, updates results, and presents new analysis to examine the costs and benefits of judicial foreclosure review. Consistent with previous studies, we find that judicial review imposes large costs with few, if any, offsetting benefits. We also provide early analysis of the new mortgage servicing rules enacted ...
Working Paper
CMBS Market Evolution and Emerging Risks
We study the evolution of the private-label CMBS market from one dominated by broadly diversified long-term, fixed-rate conduit securitizations to one dominated in 2021–22 by undiversified short-term, floating-rate Single-Asset, Single-Borrower (SASB) securitizations. Twenty-five years of stable bond returns and exceptionally low losses help explain the growth and standardization of the SASB market following the Global Financial Crisis. Historically low interest rates and pandemic-era dislocations help explain the recent dominance of short-term, floating-rate SASBs. Factors contributing to ...
Working Paper
Bank Stress Test Results and Their Impact on Consumer Credit Markets
Using Federal Reserve (Fed) confidential stress test data, we exploit the gap between the Fed and bank capital projections as an exogenous shock to banks and analyze how this shock is transmitted to consumer credit markets. First, we document that banks in the 90th percentile of the capital gap reduce their new supply of risky credit by 13 percent compared with those in the 10th percentile and cut their overall credit card risk exposure on an annual basis. Next, we show that these banks find alternative ways to remain competitive and attract customers by lowering interest rates and offering ...