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Working Paper
Determinants and consequences of mortgage default
We study a unique data set of borrower-level credit information from TransUnion, one of the three major credit bureaus, which is linked to a database containing detailed information on the borrowers? mortgages. We find that the updated credit score is an important predictor of mortgage default in addition to the credit score at origination. However, the 6-month change in the credit score also predicts default: A positive change in the credit score significantly reduces the probability of delinquency or foreclosure. Next, we analyze the consequences of default on a borrower?s credit score. The ...
Journal Article
Banking deregulation helps small business owners stabilize their income
Once banking markets were opened up to geographic diversity and competition, more banks were in a better position to lend money to small businesses-even in tough times.
Working Paper
Moving to a new job: the role of home equity, debt, and access to credit
The severe decline in house prices during and after the Great Recession may have hampered adjustment in U.S. labor markets by limiting mobility of unemployed workers. Mobility will suffer if unemployed workers are reluctant to leave homes that, with debt exceeding value, cannot be disposed of without injecting cash or defaulting?a pattern referred to as "housing lock-in." If such reluctance keeps workers from moving from depressed areas to areas with available jobs, the Beveridge curve, which depicts the relationship between vacancies and joblessness, may shift outward. To examine whether ...
Conference Paper
Understanding the subprime mortgage crisis
Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and macroeconomic conditions. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but ...
Journal Article
Income inequality: time for predatory lending laws?
States that have adopted laws against such lending had higher than average levels of income inequality over the past 10 years than did states that didn't pass such laws.
Journal Article
Did credit scores predict the subprime crisis?
One would think that credit scores would be a predictor of who would default on a subprime mortgage. But that doesn't seem to be the case.
Journal Article
Quick exits of subprime mortgages
All holders of mortgage contracts, regardless of type, have three options: keep their payments current, prepay (usually through refinancing), or default on the loan. The latter two options terminate the loan. The termination rates of subprime mortgages that originated each year from 2001 through 2006 are surprisingly similar: about 20, 50, and 80 percent, respectively, at one, two, and three years after origination. For loans originated when house prices appreciated the most, terminations were dominated by prepayments. For loans originated when the housing market slowed, defaults dominated. ...
Working Paper
The rise and fall of consumption in the '00s
The major portion of U.S. gross domestic product (GDP) is accounted for by consumer spending, which significantly affects the business cycle. Consumer demand has been extremely volatile since 2000, especially given the booms and busts in housing values and in subprime mortgage lending. While it is well-established that housing net worth, credit availability, and household debt levels help to explain changes in consumer spending, the roles played by other potential determinants of consumption are not well identified or understood. This paper uses county-level data and a multiple-regression ...
Working Paper
Fiscal Stimulus and Consumer Debt
In the aftermath of consumer debt-induced recession, policymakers have questioned whether fiscal stimulus is effective during the periods of high consumer indebtedness. This study empirically investigates this question. Using detailed data on Department of Defense spending for the 2006-2009 period, we document that the open-economy relative fiscal multiplier is higher in geographies with higher consumer indebtedness. The results suggest that fiscal policy can mitigate the adverse effect of consumer (over)leverage on real economic output during a recession. We then exploit detailed microdata ...
Journal Article
Does Fiscal Stimulus Work when Recessions Are Caused by Too Much Private Debt?
We argue that fiscal stimulus funded by public debt is effective for increasing economic activity and employment even in recessions that are caused by overborrowing in the private sector. We analyze the impact of government spending on local economies between 2007 and 2009 and find evidence that the fiscal multiplier is higher in geographical areas characterized by higher individual household debt. The higher multiplier in those areas might be attributed to a direct increase in both household consumption and local economic slack.