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Working Paper
Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures
Willen, Paul S.; Gerardi, Kristopher S.; Shapiro, Adam Hale (2007)
This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989?2007 period using a competing risks, proportional hazard framework. We present two main findings. First, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as ...
Working Papers , Paper 07-15

Discussion Paper
Educational opportunity and income inequality
Willen, Paul S.; Hendel, Igal; Shapiro, Joel (2004)
Affordable higher education is, and has been, a key element of social policy in the United States with broad bipartisan support. Financial aid has substantially increased the number of people who complete university?generally thought to be a good thing. We show, however, that making education more affordable can increase income inequality. The mechanism that drives our results is a combination of credit constraints and the ?signaling? role of education first explored by Spence (1973). When borrowing for education is difficult, lack of a college education could mean that one is either of low ...
Public Policy Discussion Paper , Paper 04-5

Foreclosures, house-price changes, and subprime mortgages in Massachusetts cities and towns
Willen, Paul S.; Gerardi, Kristopher S.; Shapiro, Adam Hale (2008)
This module shows: The changing patterns in foreclosure rates and subprime mortgage originations across Massachusetts cities and towns over time; How movements in these rates compare with movements in house prices for any user-selected city or town; The association between foreclosure rates and median income in these cities and towns.
Interactive Maps and Charts

Working Paper
Technological innovation in mortgage underwriting and the growth in credit, 1985–2015
Foote, Christopher L.; Loewenstein, Lara; Willen, Paul S. (2019-11-01)
The application of information technology to finance, or ?fintech,? is expected to revolutionize many aspects of borrowing and lending in the future, but technology has been reshaping consumer and mortgage lending for many years. During the 1990s, computerization allowed mortgage lenders to reduce loan-processing times and largely replace human-based assessments of credit risk with default predictions generated by sophisticated empirical models. Debt-to-income ratios at origination add little to the predictive power of these models, so the new automated underwriting systems allowed higher ...
Working Papers , Paper 19-11

Working Paper
What explains differences in foreclosure rates? a response to Piskorski, Seru, and Vig
Adelino, Manuel; Willen, Paul S.; Gerardi, Kristopher S. (2010)
In this note we discuss the findings in Piskorski, Seru, and Vig (2010) as well as the authors' interpretation of their results. First, we find that small changes to the set of covariates used by Piskorski, Seru, and Vig significantly reduce the magnitude of the differences in foreclosure rates between securitized and nonsecuritized loans. Second, we argue that early payment defaults (EPD) are not a valid instrument for the securitization status of the loans and that the empirical implementation chosen by the authors for using EPD is not a valid instrumental variables approach. Finally, we ...
FRB Atlanta Working Paper , Paper 2010-08

Working Paper
Technological Innovation in Mortgage Underwriting and the Growth in Credit: 1985-2015
Foote, Christopher L.; Loewenstein, Lara; Willen, Paul S. (2018-12-07)
The application of information technology to finance, or ?fintech,? is expected to revolutionize many aspects of borrowing and lending in the future, but technology has been reshaping consumer and mortgage lending for many years. During the 1990s computerization allowed mortgage lenders to reduce loan-processing times and largely replace human-based assessment of credit risk with default predictions generated by sophisticated empirical models. Debt-to-income ratios at origination add little to the predictive power of these models, so the new automated underwriting systems allowed higher ...
Working Papers (Old Series) , Paper 1816

Conference Paper
Summary of \"subprime outcomes: risky mortgages, homeownership experiences, and foreclosures\"
Willen, Paul S.; Gerardi, Kristopher S.; Shapiro, Adam Hale (2008)
Proceedings , Paper 1091

Discussion Paper
Payment size, negative equity, and mortgage default
Fuster, Andreas; Willen, Paul S. (2012)
Surprisingly little is known about the importance of mortgage payment size for default, as efforts to measure the treatment effect of rate increases or loan modifications are confounded by borrower selection. We study a sample of hybrid adjustable-rate mortgages that have experienced large rate reductions over the past years and are largely immune to these selection concerns. We show that interest rate changes dramatically affect repayment behavior. Our estimates imply that cutting a borrower?s payment in half reduces his hazard of becoming delinquent by about two-thirds, an effect that is ...
Public Policy Discussion Paper , Paper 12-10

Working Paper
Occupation-level income shocks and asset returns: their covariance and implications for portfolio choice
Davis, Steven J.; Willen, Paul S. (2013-10-24)
This paper develops and applies a simple graphical approach to portfolio selection that accounts for covariance between asset returns and an investor's labor income. Our graphical approach easily handles income shocks that are partly hedgeable, multiple risky assets, multiple risky assets, many periods, and life cycle considerations.
Working Papers , Paper 13-9

Working Paper
The Failure of supervisory stress testing: Fannie Mae, Freddie Mac, and OFHEO
Frame, W. Scott; Gerardi, Kristopher S.; Willen, Paul S. (2015-03-01)
In the aftermath of the global financial crisis, policymakers in the United States and elsewhere have adopted stress testing as a central tool for supervising large, complex, financial institutions and promoting financial stability. Although supervisory stress testing may confer substantial benefits, such tests are vulnerable to model risk. This paper studies the risk-based capital stress test conducted by the Office of Federal Housing Enterprise Oversight (OFHEO) for Fannie Mae and Freddie Mac, the two government-sponsored enterprises (GSEs) that are central to the U.S. housing finance ...
Working Papers , Paper 15-4

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