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Working Paper
Financing Affordable and Sustainable Homeownership with Fixed-COFI Mortgages
The 30-year fixed-rate fully amortizing mortgage (or ?traditional fixed-rate mortgage?) was a substantial innovation when first developed during the Great Depression. However, it has three major flaws. First, because homeowner equity accumulates slowly during the first decade, homeowners are essentially renting their homes from lenders. With this sluggish equity accumulation, many lenders require large down payments. Second, in each monthly mortgage payment, homeowners substantially compensate capital markets investors for the ability to prepay. The homeowners might have better uses for this ...
Working Paper
Household Financial Distress and the Burden of 'Aggregate' Shocks
The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their "FD-intensity," measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as "aggregate" in nature hit geographic areas quite differently, and (iii) FD is an economic "pre-existing ...
Three Reasons Why Millennials May Face Devastating Setback from COVID-19
Will the millennial generation, already known for its financial struggles in the wake of the Great Recession, face a devastating financial setback from the coronavirus pandemic?
Working Paper
“Don't Know What You Got Till It’s Gone” — The Effects of the Community Reinvestment Act (CRA) on Mortgage Lending in the Philadelphia Market
The Community Reinvestment Act (CRA), enacted in 1977, has served as an important tool to foster access to financial services for lower-income communities across the country. This study provides new evidence on the effectiveness of CRA on mortgage lending by focusing on a large number of neighborhoods that became eligible and ineligible for CRA credit in the Philadelphia market because of an exogenous policy shock in 2014. The CRA effects are more evident when a lower-income neighborhood loses its CRA coverage, which leads to a 10 percent or more decrease in purchase originations by ...
Working Paper
Consumption in the Great Recession: The Financial Distress Channel
During the Great Recession, the collapse of consumption across the U.S. varied greatly but systematically with house-price declines. We find that financial distress among U.S. households amplified the sensitivity of consumption to house-price shocks. We uncover two essential facts: (1) the decline in house prices led to an increase in household financial distress prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of financial distress prior to the recession was positively correlated with house-price declines at the onset of the recession. Using ...
Conference Paper
The subprime turmoil: what’s old, what’s new, and what’s next
Working Paper
Household Financial Distress and the Burden of “Aggregate” Shocks
The goal of this paper is to show that household-level financial distress (FD) varies greatly, meaning there is unequal exposure to macroeconomic risk, and that FD can increase macroeconomic vulnerability. To do this, we first establish three facts: (i) regions in the U.S. vary significantly in their "FD-intensity," measured either by how much additional credit households therein can access, or in how delinquent they typically are on debts, (ii) shocks that are typically viewed as "aggregate" in nature hit geographic areas quite differently, and (iii) FD is an economic "preexisting ...
Working Paper
Do Minorities Pay More for Mortgages?
We test for racial discrimination in the prices charged by mortgage lenders. We construct a unique dataset where we observe all three dimensions of a mortgage's price: the interest rate, discount points, and fees. While we find statistically significant gaps by race and ethnicity in interest rates, these gaps are offset by differences in discount points. We trace out point-rate schedules and show that minorities and whites face identical schedules, but sort to different locations on the schedule. Such sorting may reflect systematic differences in liquidity or preferences. Finally, we find no ...
Working Paper
Consumption in the Great Recession: The Financial Distress Channel
During the Great Recession, the collapse of consumption across the US varied greatly but systematically with house-price declines. Our message is that household financial health matters for understanding this relationship. Two facts are essential for our finding: (1) the decline in house prices led to an increase in household financial distress (FD) prior to the decline in income during the recession, and (2) at the zip-code level, the prevalence of FD prior to the recession was positively correlated with house-price declines at the onset of the recession. We measure the power of the ...
Working Paper
The impact of the home valuation code of conduct on appraisal and mortgage outcomes
Superseded by Working Paper 15-28. During the housing crisis, it came to be recognized that inflated home mortgage appraisals were widespread during the subprime boom. The New York State Attorney General?s office investigated this issue with respect to one particular lender and Fannie Mae and Freddie Mac. The investigation resulted in an agreement between the Attorney General?s office, the government-sponsored enterprises (GSEs), and the Federal Housing Finance Agency (the GSEs? federal regulator) in 2008, in which the GSEs agreed to adopt the Home Valuation Code of Conduct (HVCC). Using ...