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Working Paper
Differences in subprime loan pricing across races and neighborhoods
We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual- and neighborhood- level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the differences in subprime mortgage rates in terms of racial and ethnic groups and neighborhood characteristics. We find evidence of adverse pricing for ...
Working Paper
Intergenerational Linkages in Household Credit
We document novel, economically important correlations between children?s future credit risk scores, default, and homeownership status and their parents? credit characteristics measured when the children are in their late teens. A one standard deviation higher parental credit risk score when the child is 19 is associated with a 24 percent reduction in the likelihood that the child goes bankrupt by age 29, a 36 percent lower likelihood of other serious default, a 35 point higher child credit score, and a 23 percent higher chance of the child becoming a homeowner. The linkages persist after ...
Working Paper
Is housing the business cycle? evidence from U.S. cities
We analyze the relationship between housing and the business cycle in a set of 51 U.S. cities. Most surprisingly, we find that declines in house prices are often not followed by declines in employment. We also find that national permits are a better leading indicator for a city?s employment than a city?s own permits.
Briefing
Deterring default: why some state laws decrease the probability of mortgage foreclosures
Many states give mortgage lenders strong legal means by which to pursue debt collection in the event of a mortgage default. In those states, probability of default is lower and the forms the default takes are often quite different from a costly conventional foreclosure.
Working Paper
Intergenerational Linkages in Household Credit
We document economically important correlations between children?s future credit outcomes and their parents? credit risk scores, default, and the extent of credit constraints ? intergenerational linkages in household credit. Using observations on siblings, we find that the linkages are due to unobserved household heterogeneity rather than parental credit conditions directly affecting children?s credit outcomes. In particular, in the sample of siblings, there is no correlation between parental and child credit attributes after controlling for household fixed effects. The linkages are stronger ...
Working Paper
Did affordable housing legislation contribute to the subprime securities boom?
No. In this paper we use a regression discontinuity approach to investigate whether affordable housing policies influenced origination or affected prices of subprime mortgages. We use merged loan-level data on non-prime securitized mortgages with individual- and neighborhood-level data for California and Florida. We find no evidence that lenders increased subprime originations or altered pricing around the discrete eligibility cutoffs for the Government Sponsored Enterprises (GSEs) affordable housing goals or the Community Reinvestment Act. Our results indicate that the extensive purchases of ...
Briefing
How Risky Are Young Borrowers?
Young borrowers are conventionally considered the most prone to making financial mistakes. This has spurred efforts to limit their access to credit, particularly via credit cards. Recent research suggests, however, that young borrowers are actually among the least likely to experience a serious credit card default. One reason why people obtain credit cards early in life may be to build a strong credit history.
Working Paper
Are young borrowers bad borrowers? Evidence from the Credit CARD Act of 2009
Young borrowers are the least experienced financially and, conventionally, thought to be most prone to financial mistakes. We study the relationship between age and financial problems related to credit cards. Our results challenge the notion that young borrowers are bad borrowers. We show that young borrowers are among the least likely to experience a serious credit card default. We then exploit the 2009 CARD Act to identify which individuals self-select into obtaining a credit card early in life. We find that individuals who choose early credit card use default less and are more likely to ...
Working Paper
Recourse and residential mortgage default: theory and evidence from U.S. states
We analyze the impact of lender recourse on mortgage defaults theoretically and empirically across U.S. states. We study the effect of state laws regarding deficiency judgments in a model where lenders can use the threat of a deficiency judgment to deter default or to shorten the default process. Empirically, we find that recourse decreases the probability of default when there is a substantial likelihood that a borrower has negative home equity. We also find that, in states that allow deficiency judgments, defaults are more likely to occur through a lender-friendly procedure, such as a deed ...