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Foreclosures Loom Large in the Region
Households in the New York-northern New Jersey region were spared the worst of the housing bust and have generally experienced less financial stress than average over the past several years. However, as the housing market has begun to recover both regionally and nationally, the region is faring far worse than the nation in one important respect—a growing backlog of foreclosures is resulting in a foreclosure rate that is now well above the national average. In this blog post, we describe this outsized increase in the region’s foreclosure rate and explain why it has occurred. We then ...
A simple model of subprime borrowers and credit growth
The surge in credit and house prices that preceded the Great Recession was particularly pronounced in ZIP codes with a higher fraction of subprime borrowers (Mian and Sufi 2009). We present a simple model of prime and subprime borrowers distributed across geographic locations, which can reproduce this stylized fact as a result of an expansion in the supply of credit. Owing to their low incomes, subprime households are constrained in their ability to meet interest payments and hence sustain debt. As a result, when the supply of credit increases and interest rates fall, they take on ...
Gulf War II Veterans Home Buyers Tax Credit
Over the next few years, large volumes of homes are likely to flow from foreclosure onto lenders? balance sheets as ?real estate owned,? or REO. Without a significant boost to demand, this large volume of ?distressed? real estate could potentially put substantial downward pressure on home prices. Accordingly, new policy initiatives are needed to increase the rate at which properties that flow into REO get reabsorbed back into use as renter- or owner-occupied units. In this post, I make the case for a tax credit for Gulf War II veterans? home purchases.
A Shortage of Short Sales: Explaining the Underutilization of a Foreclosure Alternative
The Great Recession led to widespread mortgage defaults, with borrowers resorting to both foreclosures and short sales to resolve their defaults. I first quantify the economic impact of foreclosures relative to short sales by comparing the home price implications of both. After accounting for omitted variable bias, I find that homes selling as short sales transact at 9.2% to 10.5% higher prices on average than those that sell after foreclosure. Short sales also exert smaller negative externalities than foreclosures, with one short sale decreasing nearby property values by 1 percentage point ...