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Working Paper
Pretend or Amend? On Evergreening in CRE
Loan modifications can either amplify or mitigate credit losses depending on the strategy lenders employ. Using detailed supervisory data and a model accounting for competing extension motivations (temporary repayment difficulties, foreclosure costs, and loss recognition costs), I assess why banks extend CRE loans. I find that extensions predominantly address temporary payment frictions, both in normal times and following the Spring 2023 bank stress episode. Contrary to banks "extending-and-pretending" during that episode, banks increased income and principal paydown requirements for ...
Working Paper
Loan Delinquency Projections for COVID-19
The authors forecast the effects of the COVID-19 pandemic on loan delinquency rates under three scenarios for unemployment and house price movements. In the baseline scenario, their model predicts that loan delinquency rises from 2.3 percent in 2019 to a peak of 3.9 percent in 2025 with a total of $580 billion in write-offs. In 2021, absent policy intervention, the model predicts that delinquency would be 3.1 percent. However, mortgage forbearance, student loan forbearance, and fiscal transfers keep delinquency from increasing in 2021. The greatest reductions in delinquency are achieved ...