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Working Paper
Redefault Risk in the Aftermath of the Mortgage Crisis: Why Did Modifications Improve More Than Self-Cures?
This paper examines changes in the redefault rate of mortgages that were selected for modification during 2008?2011, compared with that of similarly situated self-cured mortgages. We find a large decline in the redefault rate of both modified and self-cured mortgages over this period, but the improvement was greatest for modifications. Our analysis has identified several important factors contributing to the greater improvement for modified loans, including an increasing share of principal-reduction modifications, which appear to be more effective than other types of modification and ...
Working Paper
The Mortgage Prepayment Decision: Are There Other Motivations Beyond Refinance and Move?
Borrowers terminate residential mortgages for a variety of reasons. Prepayments and defaults have always been distinguishable, and researchers have recently distinguished between prepayments involving a move and other prepayments. But these categories still combine distinct decisions. For example, a borrower may refinance to obtain a lower interest rate or to borrow a larger amount. By matching mortgage servicing and credit bureau records, we are able to distinguish among several motivations for prepayment: simple refinancing, cash-out refinancing, mortgage payoff, and move. Using multinomial ...
Working Paper
The Behavioral Relationship Between Mortgage Prepayment and Default
An implication of the dual trigger theory of default is that mortgage borrowers who experience an unexpected financial reverse will prepay their mortgage rather than default if their equity in the house is positive. We test this idea with a new data set created by matching mortgage servicing records and credit bureau records to classify prepayments by what happens subsequently. In particular, we can identify a subset of prepayments that seems consistent with the dual trigger theory. If the theory is correct, these prepayments should exhibit similarities to defaults in the data set rather than ...
Working Paper
The Credit Card Act and Consumer Debt Structure
We investigate whether the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 influenced the debt structure of consumers. By debt structure, we mean the proportion of total available credit from credit cards for each consumer.The act enhances disclosures of contractual and related information and restricts card issuers’ ability to raise interest rates or charge late or over-limit fees, primarily affecting non-prime borrowers. Using the credit history via the Federal Reserve Bank of New York/Equifax Consumer Credit Panel during 2006–2016, we find that the average ...
Working Paper
The evolution of u.s. Community banks and its impact on small business lending
There have been increasing concerns about the declining number of community banks and that the acquisitions of community banks by larger banks might result in significant reductions in small business lending (SBL) and disrupt relationship lending. This paper examines the roles and characteristics of U.S. community banks in the past decade, covering the recent economic boom and downturn. We analyze risk characteristics (including the confidential ratings assigned by bank regulators) of acquired community banks, compare pre- and post-acquisition performance and stock market reactions to these ...
Working Paper
Redefault Risk in the Aftermath of the Mortgage Crisis: Why Did Modifications Improve More Than Self-Cures?
This paper examines changes in the redefault rate of mortgages that were selected for modification during 2008?2011, compared with that of similarly situated self-cured mortgages during the same period. We find that while the performance of both modified and self-cured loans improved dramatically over this period, the decline in the redefault rate for modified loans was substantially larger, and we attribute this difference to a few key factors. First, the modification terms regarding repayments have become increasingly more generous, including more principal reduction, resulting in greater ...
Working Paper
How Important Are Local Community Banks to Small Business Lending? Evidence from Mergers and Acquisitions [REVISED]
[REVISED AUG 2019]We investigate the shrinking community banking sector and the impact on local small business lending (SBL) in the context of mergers and acquisitions. From all mergers that involved community banks, we examine the varying impact on SBL depending on the local presence of the acquirers? and the targets? operations prior to acquisitions. Our results indicate that, relative to counties where the acquirer had operations before the merger, local SBL declined significantly more in counties where only the target had operations before the merger. This result holds even after ...