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Working Paper
Decomposing Gender Differences in Bankcard Credit Limits
In this paper, we examine if there are gender differences in total bankcard limits by utilizing a data set that links mortgage applicant information with individual-level credit bureau data from 2006 - 2016. We document that after controlling for credit score, income, and demographic characteristics, male borrowers on average have higher total bankcard limits than female borrowers. Using a standard Kitagawa-Oaxaca-Blinder decomposition, we find that 87 percent of the gap is explained by differences in the effect of observed characteristics between male and female borrowers, while ...
Working Paper
Who Remains Unbanked in the United States and Why?
This paper conducts a detailed exploration of the factors associated with unbanked status among U.S. households and how these relationships evolved between 2015 and 2019. Biennial FDIC household survey data on bank account ownership and household characteristics, combined with state-level variables, are examined with application of both fixed effects and multilevel modeling. The analysis finds that even as rising incomes drove a decline in the unbanked percentage of the population over this period, income remained the most significant differentiator, with strong associations with race and ...
Working Paper
Life-Cycle Portfolio Choices and Heterogeneous Stock Market Expectations
Survey measurements of households’ expectations about U.S. equity returns show substantial heterogeneity and large departures from the historical distribution of actual returns. The average household perceives a lower probability of positive returns and a greater probability of extreme returns than history has exhibited. I build a life-cycle model of saving and portfolio choices that incorporates beliefs estimated to match these survey measurements of expectations. This modification enables the model to greatly reduce a tension in the literature in which models that have aimed to match ...
Working Paper
Decomposing Gender Differences in Bankcard Credit Limits
Using linked mortgage application and credit bureau data, we document the existence of unconditional and conditional gender gaps in the distribution of total bankcard limits. We estimate that male borrowers have approximately $1,300 higher total bankcard limits than female borrowers. This gap is primarily driven by a large gender gap in the right tail of the limit distribution. At the median and in the left tail of the total limit distribution, women have larger limits than men. Results from a Kitagawa-Oaxaca-Blinder decomposition show that 87 percent of the gap is explained by differences in ...
Working Paper
Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market
Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers’ mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the US ...
Working Paper
Who Pays For Your Rewards? Redistribution in the Credit Card Market
We study credit card rewards as an ideal laboratory to quantify redistribution between consumers in retail financial markets. Comparing cards with and without rewards, we find that, regardless of income, sophisticated individuals profit from reward credit cards at the expense of naive consumers. To probe the underlying mechanisms, we exploit bank-initiated account limit increases at the card level and show that reward cards induce more spending, leaving naive consumers with higher unpaid balances. Naive consumers also follow a sub-optimal balance-matching heuristic when repaying their credit ...
Working Paper
Coverage Neglect in Homeowner's Insurance
Most homeowners do not have enough insurance coverage to rebuild their house after a total loss. Using contract-level data from 24 homeowner's insurance companies in Colorado, we show wide differences in average underinsurance across insurers that persist conditional on policyholder characteristics. Underinsurance matters for disaster recovery. Across households that lost homes to a major wildfire, each 10 percentage point increase in underinsurance reduces the likelihood of filing a rebuilding permit within a year of the fire by 4 percentage points. To understand why consumers purchase ...
Working Paper
Climate Risk, Insurance Premiums and the Effects on Mortgage and Credit Outcomes
As climate change exacerbates natural disasters, homeowners’ insurance premiums are rising dramatically. We examine the impact of premium increases on borrowers’ mortgage and credit outcomes using new data on home insurance policies for 6.7 million borrowers. We find that higher premiums increase the probability of mortgage delinquency, as well as prepayment (driven mainly by relocation). The results hold using a novel instrumental variable. The delinquency effect is greater for borrowers with higher debt-to-income ratios. Both delinquency and prepayment effects are present in both GSE ...
Working Paper
Not Cashing In on Cashing Out: An Analysis of Low Cash-Out Refinance Rates
Lowering a borrower’s interest rate is one of the most effective ways to reduce a borrower’s debt burden. Mortgage refinancing offers a chance to shift debt balances from high-interest loans into a low-interest mortgage through “cashing out” some of the home’s equity. Borrowers could reduce their monthly payments by up to 13 percent by folding a student loan with a 6 percent interest rate into a mortgage with a 3 percent interest rate. Using anonymized data on mortgage refinancing behavior, we find that over half of borrowers with high-interest loans and available home equity do not ...