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Working Paper
Owner-Occupancy Fraud and Mortgage Performance
We identify occupancy fraud — borrowers who misrepresent their occupancy status as owner-occupants rather than investors — in residential mortgage originations. Unlike previous work, we show that fraud was prevalent in originations not just during the housing bubble, but also persists through more recent times. We also demonstrate that fraud is broad-based and appears in government-sponsored enterprise and bank portfolio loans, not just in private securitization; these fraudulent borrowers make up one-third of the effective investor population. Occupancy fraud allows riskier borrowers to ...
Working Paper
What Drives Bank Funding Spreads?
We use matched, bank-level panel data on Libor submissions and credit default swaps to decompose bank-funding spreads at several maturities into components reflecting counterparty credit risk and funding-market liquidity. To account for the possibility that banks may strategically misreport their funding rates in the Libor survey, we nest our decomposition within a model of the costs and benefits of lying. We find that Libor spreads typically consist mostly of a liquidity premium and that this premium declined at short maturities following Federal Reserve interventions in bank funding ...
Working Paper
Owner-Occupancy Fraud and Mortgage Performance
We use a matched credit bureau and mortgage dataset to identify occupancy fraud in residential mortgage originations, that is, borrowers who misrepresented their occupancy status as owner-occupants rather than residential real estate investors. In contrast to previous studies, our dataset allows us to show that – during the housing bubble – such fraud was broad based, appearing in the government-sponsored enterprise market and in loans held on bank portfolios as well, and increases the effective share of investors by 50 percent. We show that a key benefit of investor fraud was obtaining a ...