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Working Paper
The Marginal Effect of Government Mortgage Guarantees on Homeownership
The U.S. government guarantees a majority of residential mortgages, which is often justified as a means to promote homeownership. In this paper we use property-level data to estimate the effect of government mortgage guarantees on homeownership, by exploiting variation of the conforming loan limits (CLLs) along county borders. We find substantial effects on government guarantees, but find no robust effect on homeownership. This finding suggests that government guarantees could be considerably reduced with modest effects on homeownership, which is relevant for housing finance reform plans that ...
Working Paper
Liquidity Crises in the Mortgage Market
Non-banks originated about half of all mortgages in 2016, and 75% of mortgages insured by the FHA or VA. Both shares are much higher than those observed at any point in the 2000s. We describe in this paper how non-bank mortgage companies are vulnerable to liquidity pressures in both their loan origination and servicing activities, and we document that this sector in aggregate appears to have minimal resources to bring to bear in a stress scenario. We show how the same liquidity issues unfolded during the financial crisis, leading to the failure of many non-bank companies, requests for ...
Working Paper
Cheapest-to-Deliver Pricing, Optimal MBS Securitization, and Market Quality
We study optimal securitization and its impact on market quality when the secondary market structure leads to cheapest-to-deliver pricing in the context of agency mortgage-backed securities (MBS). A majority of MBS are traded in the to-be-announced (TBA) market, which concentrates trading of heterogeneous MBS into a few liquid TBA contracts but induces adverse selection. We find that lenders segregate loans of like values into separate pools and tend to trade low-value MBS in the TBA market and high-value MBS outside the TBA market. We then present a model of optimal securitization for agency ...
Discussion Paper
On the Benefits of Universal Banks: Concurrent Lending and Corporate Bond Underwriting
In this note, we explore whether "universal banks" provide value to firms through their ability to provide both lending and underwriting services.
Working Paper
Consumer Mistakes and Advertising : The Case of Mortgage Refinancing
Does advertising help consumers to find the products they need or push them to buy products they don't need? In this paper, we study the effects of advertising on consumer mistakes and quantify the resulting effect on consumer welfare in the market for mortgage refinancing. Mortgage borrowers frequently make costly refinancing mistakes by either refinancing when they should wait, or by waiting when they should refinance. We assemble a novel data set that combines a borrower's exposure to direct mail refinance advertising and their subsequent refinancing decisions. Even though on average ...
Working Paper
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
We study the role of mortgage servicers in implementing the CARES Act mortgage forbearance program during the COVID-19 pandemic. Despite universal eligibility,we document that a significant number of federally backed mortgage borrowers be-come delinquent during the pandemic without successfully entering into a forbearance program, and that the relative frequency of these "missing" forbearances varies significantly across mortgage servicers for otherwise identical loans. Forbearance out-comes are systematically related to servicer characteristics including size, liquidity and ...
Working Paper
Advertising and Risk Selection in Health Insurance Markets
We study impacts of advertising as a channel of risk selection in Medicare Advantage. We show evidence that both mass and direct mail advertising are targeted to achieve risk selection. We develop and estimate an equilibrium model of Medicare Advantage with advertising to understand its equilibrium impacts. We find that advertising attracts the healthy more than the unhealthy. Moreover, shutting down advertising increases premiums by up to 40% for insurers that advertised by worsening their risk pools, which further reduces the demand of the unhealthy. We argue that risk selection may make ...
Report
Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
We study how intermediaries—mortgage servicers—shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effect of forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers and nonbanks, especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity ...
Working Paper
The Dynamics of Adjustable-Rate Subprime Mortgage Default: A Structural Estimation
We present a dynamic structural model of subprime adjustable-rate mortgage (ARM) borrowers making payment decisions taking into account possible consequences of different degrees of delinquency from their lenders. We empirically implement the model using unique data sets that contain information on borrowers' mortgage payment history, their broad balance sheets, and lender responses. Our investigation of the factors that drive borrowers' decisions reveals that subprime ARMs are not all alike. For loans originated in 2004 and 2005, the interest rate resets associated with ARMs, as well as the ...
Working Paper
The dynamics of subprime adjustable-rate mortgage default: a structural estimation
We present a dynamic structural model of subprime adjustable-rate mortgage (ARM) borrowers making payment decisions, taking into account possible consequences of different degrees of delinquency from their lenders. We empirically implement the model using unique data sets that contain information on borrowers' mortgage payment history, their broad balance sheets, and lender responses. Our investigation of the factors that drive borrowers' decisions reveals that subprime ARMs are not all alike. For loans originated in 2004 and 2005, the interest rate resets associated with ARMs as well as the ...