Why did so many people make so many ex post bad decisions?: the causes of the foreclosure crisis
This paper presents 12 facts about the mortgage market. The authors argue that the facts refute the popular story that the crisis resulted from financial industry insiders deceiving uninformed mortgage borrowers and investors. Instead, they argue that borrowers and investors made decisions that were rational and logical given their ex post overly optimistic beliefs about house prices. The authors then show that neither institutional features of the mortgage market nor financial innovations are any more likely to explain those distorted beliefs than they are to explain the Dutch tulip bubble ...
This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. We use an economic model to focus on two key decisions: the borrower?s choice to default on the mortgage and the lender?s choice on whether to renegotiate or ?modify? the loan. The theoretical model and econometric analysis illustrate that ?unaffordable? loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. Rather, the typical problem appears to be a ...
Subprime outcomes: turmoil in the mortgage market
Until 2007, few Americans had probably heard the word ?subprime? - including many homeowners who would come to learn that their own mortgage was a subprime mortgage. Today, subprime mortgages are much discussed because they lie at the center of the turmoil that roiled credit markets in 2007 and 2008.
U. S. labor supply in the twenty-first century
The American labor force will be transformed as the twenty-first century unfolds, a change that will confront policymakers and business firms with new challenges and new opportunities. The impending slowdown of labor force growth that will accompany the retirement of the baby boom generation already is playing a central role in national debates over the future solvency of Social Security and Medicare, as well as U.S. immigration policies. But labor supply changes will be influenced by other dimensions as well. In the coming decades, American workers are likely to be, on average, older and ...
Economic policy and prospects in Iraq
This paper describes the Coalition Provisional Authority?s attempts to stabilize and reform Iraq?s economy along market lines. It argues that while security concerns remain serious, Iraq?s economy has not been crippled by violence. However, sustained economic growth will depend on whether Iraq?s future leaders pursue the pro-market approaches the Coalition has advocated. If the Iraqi economy is to reach its potential, it will need to go even farther than the Coalition did, implementing reforms the Coalition did not pursue because of security concerns.
Subprime facts: what (we think) we know about the subprime crisis and what we don’t
Using a variety of datasets, we document some basic facts about the current subprime crisis. Many of these facts are applicable to the crisis at a national level, while some illustrate problems relevant only to Massachusetts and New England. We conclude by discussing some outstanding questions about which the data, we believe, are not yet conclusive.
Mortgage-default research and the recent foreclosure crisis
This paper reviews recent research on mortgage default, focusing on the relationship of this research to the recent foreclosure crisis. Research on defaults was advanced both theoretically and empirically by the time the crisis began, but economists have moved the frontier further by improving data sources, building dynamic optimizing models of default, and explicitly addressing reverse causality between rising foreclosures and falling house prices. Mortgage defaults were also a key component of early research that pointed to subprime and other privately securitized mortgages as fundamental ...
Oil and the macroeconomy in a changing world: a conference summary
Analysis of oil-price movements is once again an important feature of economic policy discussions. To provide some background for this analysis, this paper summarizes a conference on the oil market held at the Federal Reserve Bank of Boston in June 2010. Four cross-cutting themes emerged from this symposium, which included scientific experts, market participants, business leaders, academics, and policymakers. First, the decline in real oil prices that followed the 1970s' oil shocks is unlikely to be repeated today, because there are fewer ways in which oil-importing countries can reduce oil ...
A proposal to help distressed homeowners: a government payment-sharing plan
This public policy brief presents a proposal, originally posted on the website of the Federal Reserve Bank of Boston in January of this year, designed to help homeowners who are unable to afford mortgage payments on their principal residence because they have suffered a significant income disruption and because the balance owed on their mortgage exceeds the value of their home. These homeowners represent a subset of the population of distressed homeowners, but according to our research they face an elevated risk of default and are unlikely to be helped by current foreclosure-reduction ...