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Working Paper
The role of securitization in mortgage renegotiation
Agarwal, Sumit; Ben-David, Itzhak; Chomsisengphet, Souphala; Evanoff, Douglas D.; Amromin, Gene (2011)
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 ...
Working Paper Series , Paper WP-2011-02

Working Paper
Rushing into American Dream? House Prices, Timing of Homeownership, and Adjustment of Consumer Credit
Agarwal, Sumit; Hu, Luojia; Huang, Xing (2013-11-01)
In this paper we use a large panel of individuals from Consumer Credit Panel dataset to study the timing of homeownership as a function of credit constraints and expectations of future house price. Our panel data allows us to track individuals over time and we model the transition probability of their first home purchase. We find that in MSAs with highest quartile house price growth, the median individual become homeowners earlier by 5 years in their lifecycle compared to MSAs with lowest quartile house price growth. The result suggests that the effect of expectation dominates the effect of ...
Working Paper Series , Paper WP-2013-13

Newsletter
Comparing the prime and subprime mortgage markets
Agarwal, Sumit; Ho, Calvin T. (2007-08)
Against the backdrop of news reports on high mortgage delinquency rates, this article examines recent trends in mortgage lending and compares the prime and subprime markets in particular.
Chicago Fed Letter , Issue Aug

Conference Paper
Distance and information asymmetries in lending decisions
Agarwal, Sumit; Hauswald, Robert (2007)
Proceedings , Paper 1052

Journal Article
The asset-backed securities markets, the crisis and TALF
Agarwal, Sumit; De Nardi, Mariacristina; Barrett, Jacqueline; Cun, Crystal (2010-10)
The authors explain the role of asset-backed securities markets in generating credit and liquidity and how this role was disrupted during the financial crisis. They discuss the implementation of the Term Asset-Backed Securities Loan Facility (TALF) and argue that this program helped reestablish the ABS markets and the credit supply. and the reversion to a stable fiscal regime.
Economic Perspectives , Volume 34 , Issue Q IV , Pages 101-115

Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Agarwal, Sumit; Scholnick, Barry; Mikhed, Vyacheslav (2016-02-11)
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Papers , Paper 16-4

Journal Article
Determinants of automobile loan default and prepayment
Agarwal, Sumit; Chomsisengphet, Souphala; Ambrose, Brent W. (2008-07)
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.
Economic Perspectives , Volume 32 , Issue Q III

Working Paper
Market-based loss mitigation practices for troubled mortgages following the financial crisis
Agarwal, Sumit; Ben-David, Itzhak; Chomsisengphet, Souphala; Evanoff, Douglas D.; Amromin, Gene (2011)
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 ...
Working Paper Series , Paper WP-2011-03

Working Paper
Perverse incentives at the banks? Evidence from a natural experiment
Agarwal, Sumit; Wang, Faye H. (2009)
Incentive provision is a central question in modern economic theory. During the run up to the financial crisis, many banks attempted to encourage loan underwriting by giving out incentive packages to loan officers. Using a unique data set on small business loan officer compensation from a major commercial bank, we test the model?s predictions that incentive compensation increases loan origination, but may induce the loan officers to book more risky loans. We find that the incentive package amounts to a 47% increase in loan approval rate, and a 24% increase in default rate. Overall, we find ...
Working Paper Series , Paper WP-09-08

Working Paper
Why do borrowers make mortgage refinancing mistakes?
Rosen, Richard J.; Agarwal, Sumit; Yao, Vincent W. (2013)
Refinancing a mortgage is often one of the biggest and most important financial decisions that people make. Borrowers need to choose the interest rate differential at which to refinance and, when that differential is reached, they need to take the steps to refinance before rates change again. The optimal differential is where the interest saved by refinancing equals the sum of refinancing costs and the option value of refinancing. Using a unique panel data set, we find that approximately 59% of borrowers refinance sub-optimally ? with 52% of the sample making errors of commission (choosing ...
Working Paper Series , Paper WP-2013-02

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