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The Effects of Mortgage Credit Availability : Evidence from Minimum Credit Score Lending Rules
Since the housing bust and financial crisis, mortgage lenders have introduced progressively higher minimum thresholds for acceptable credit scores. Using loan-level data, we document the introduction of these thresholds, as well as their effects on the distribution of newly originated mortgages. We then use the timing and nonlinearity of these supply-side changes to credibly identify their short- and medium-run effects on various individual outcomes. Using a large panel of consumer credit data, we show that the credit score thresholds have very large negative effects on borrowing in the short ...
The Effect of Interest Rates on Home Buying : Evidence from a Discontinuity in Mortgage Insurance Premiums
We study the effect of interest rates on the housing market by taking advantage of a sudden and unexpected price change in a large government mortgage program. The Federal Housing Administration (FHA) insures most mortgages to lower-downpayment, lower credit score borrowers, including a majority of first-time homebuyers. The FHA charges borrowers an annual mortgage insurance premium (MIP), and in January, 2015 the FHA abruptly reduced the MIP, and thus FHA borrowers? effective interest rate, by 50 basis points. Using a regression discontinuity design, we find that the MIP reduction increased ...
Housing Bust, Bank Lending & Employment : Evidence from Multimarket Banks
I use geographic variation in bank lending to study how bank real estate losses impacted the supply of credit and employment during the Great Recession. Banks exposed to distressed housing markets cut mortgage and small business lending relative to other banks in the same county. This lending contraction had real e?ects, as counties whose banks were exposed to adverse shocks in other markets su?ered employment declines, especially in young ?rms. This ?nding is robust to instrumenting for bank exposure to housing shocks using shocks in distant markets, exposure based on historical lending, or ...
Bank Failures, Capital Buffers, and Exposure to the Housing Market Bubble
We empirically document that banks with greater exposure to high home price-to-income ratio regions in 2005 and 2006 have higher mortgage delinquency and charge-off rates and significantly higher probabilities of failure during the last financial crisis even after controlling for capital, liquidity, and other standard bank performance measures. While high price-to-income ratios present a greater likelihood of house price correction, we find no evidence that banks managed this risk by building stronger capital buffers. Our results suggest that there is scope for improved measures of mortgage ...
Measuring Aggregate Housing Wealth : New Insights from an Automated Valuation Model
We construct a new measure of aggregate U.S. housing wealth based on Zillow?s Automated Valuation Model (AVM). AVMs offer advantages over other methods because they are based on recent market transaction prices, utilize large datasets which include property characteristics and local geographic variables, and are updated frequently with little lag. However, using Zillow?s AVM to measure aggregate housing wealth requires overcoming several challenges related to the representativeness of the Zillow sample. We propose methods that address these challenges and generate a new estimate of aggregate ...