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Working Paper
Which Lenders Are More Likely to Reach Out to Underserved Consumers: Banks versus Fintechs versus Other Nonbanks?
Dolson, Erik; Jagtiani, Julapa (2021-04-30)
There has been a great deal of interest recently in understanding the potential role of fintech firms in expanding credit access to the underbanked and credit-constrained consumers. We explore the supply side of fintech credit, focusing on unsecured personal loans and mortgage loans. We investigate whether fintech firms are more likely than other lenders to reach out to “underserved consumers,” such as minorities; those with low income, low credit scores, or thin credit histories; or those who have a history of being denied for credit. Using a rich data set of credit offers from Mintel, ...
Working Papers , Paper 21-17

Newsletter
Helping Homeowners During the Covid-19 Pandemic: Lessons from the Great Recession
Dokko, Jane; Dynan, Karen E.; Amromin, Gene (2020-06-30)
The Covid-19 public health crisis has sharply reduced the earnings of millions of U.S. households, following the severe curtailment of economic activity needed to contain the spread of the virus. Meanwhile, households continue to confront their ongoing financial obligations. The ability of households to manage these obligations has important consequences for the speed at which the U.S. economy can recover from the current crisis. Households that are wiped out financially in the coming months will not be in a position to strongly resume spending once the virus containment issues have passed. ...
Chicago Fed Letter , Issue 443 , Pages 9

Working Paper
Missouri’s Medicaid Contraction and Consumer Financial Outcomes
Bailey, James; Blascak, Nathan; Mikhed, Vyacheslav (2020-11-02)
In July 2005, a set of cuts to Medicaid eligibility and coverage went into effect in the state of Missouri. These cuts resulted in the elimination of the Medical Assistance for Workers with Disabilities program, more stringent eligibility requirements, and less generous Medicaid coverage for those who retained their eligibility. Overall, these cuts removed about 100,000 Missourians from the program and reduced the value of the insurance for the remaining enrollees. Using data from the Medical Expenditure Panel Survey, we show how these cuts increased out-of-pocket medical spending for ...
Working Papers , Paper 20-42

Discussion Paper
Evaluating the Benefits of a Streamlined Refinance Program
Willen, Paul S.; Gerardi, Kristopher S.; Loewenstein, Lara (2020-06-25)
Mortgage borrowers who have experienced employment disruptions as a result of theCOVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance (“refi”) program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial amount of housing equity that many have accumulated in recent years.
Policy Hub , Paper 2020-8

Newsletter
What are the consequences of missed payments on consumer debts?
Lanning, Jonathan; Rose, Jonathan D. (2020-05-11)
In order to understand better how the unfolding economic crisis is likely to affect U.S. households, this Chicago Fed Letter looks at what happens when borrowers miss debt payments and how long it takes for them to face a severe adverse consequence, such as foreclosure, wage garnishment, or repossession.
Chicago Fed Letter , Issue 437 , Pages 8

Working Paper
A Quantitative Theory of the Credit Score
Dempsey, Kyle; Corbae, Dean; Rios-Rull, Jose-Victor; Chatterjee, Satyajit (2020-09-30)
What is the role of credit scores in credit markets? We argue that it is a stand-in for a market assessment of a person’s unobservable type (which here we take to be patience). We pose a model of persistent hidden types where observable actions shape the public assessment of a person’s type via Bayesian updating. We show how dynamic reputation can incentivize repayment without monetary costs of default beyond the administrative cost of filing for bankruptcy. Importantly, we show how an economy with credit scores implements the same equilibrium allocation. We estimate the model using both ...
Working Papers , Paper 20-39

Discussion Paper
Evaluating the Benefits of a Streamlined Refinance Program
Willen, Paul S.; Gerardi, Kristopher S.; Loewenstein, Lara (2020-06-25)
Mortgage borrowers who have experienced employment disruptions as a result of the COVID-19 pandemic are unable to refinance their loans to take advantage of historically low market rates. In this article, we analyze the effects of a streamlined refinance ("refi") program for government-insured loans that would allow borrowers to refinance without needing to document employment or income. In addition, we consider a cash-out component that would allow borrowers to extract some of the substantial amount of housing equity that many have accumulated in recent years.
Policy Hub , Paper 2020-08

Working Paper
Issues in the Use of the Balance Sheet Tool
D'Amico, Stefania; Carlson, Mark A.; Wood, Paul R.; Fuentes-Albero, Cristina; Schlusche, Bernd (2020-08-27)
This paper considers various ways of using balance sheet policy (BSP) to provide monetary policy stimulus, including the BSPs put in place by the Federal Reserve in the wake of the Global Financial Crisis, the choice between fixed-size and flow-based asset purchase programs, policies targeting interest rate levels rather than the quantity of asset purchases, and programs aimed at increasing more direct lending to households and firms. For each of these BSP options, we evaluate benefits and costs. We conclude by observing that BSPs’ relative effectiveness and thus optimal configuration will ...
Finance and Economics Discussion Series , Paper 2020-071

Working Paper
The Impact of Covid-19 Related Policy Responses on Municipal Debt Markets
Bernhardt, Robert; D'Amico, Stefania; Palacios, Santiago I. Sordo (2021-09-03)
Municipal (muni) bonds are an important source of funding for state and local governments. During the Covid-19 pandemic, muni debt markets became severely distressed. In response, the Federal Reserve established the Municipal Liquidity Facility (MLF). Meanwhile, Congress enacted extensive fiscal measures that included direct aid to cities and states. To understand whether and how these policies worked, we employ a state-level regression model to estimate the relative efficacy of monetary and fiscal policy interventions for the term structure of muni-Treasury yield spreads. We find that fiscal ...
Working Paper Series , Paper WP-2021-14

Journal Article
Auto Loan Delinquency Rates Are Rising, but Mostly among Subprime Borrowers
Tousey, Colton; Brown, Jason (2018-08-15)
Steady increases in U.S. auto debt over the past seven years have raised concerns over credit quality and delinquency in consumers' repayment. We investigate these concerns and find that the credit quality of auto debt has actually improved throughout the current expansion. Delinquency rates have been rising mostly among subprime borrowers, who represent about a quarter of total outstanding auto debt. However, the potential risks to the financial sector are currently unknown and warrant close monitoring.
Macro Bulletin , Issue August 15, 2018 , Pages 4

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