Using the Credit Risk Transfers (CRTs) issued by Fannie Mae and Freddie Mac, we study how, absent government intervention, mortgage markets would price hurricane risk. Currently, such risk is priced ...equally across locations even if it is location‐specific. We hand collect a novel and detailed database to exploit CRTs' heterogeneous exposure to Hurricanes Harvey and Irma. Using a diff‐in‐diff specification, we estimate the reaction of private investors to hurricane risk. We use the previous results to calibrate a model of mortgage lending. We simulate hurricane frequencies and mortgage default probabilities in each US county to derive the market price of mortgage credit risk, that is, the implied guarantee fees (g‐fees). Market‐implied g‐fees in counties most exposed to hurricanes would be 70% higher than inland counties.
Explaining the housing bubble Levitin, Adam J; Wachter, Susan M
The Georgetown law journal,
04/2012, Letnik:
100, Številka:
4
Journal Article
Recenzirano
There is little consensus as to the cause of the housing bubble that precipitated the financial crisis of 2008. Numerous explanations exist: misguided monetary policy; a global savings surplus; ...government policies encouraging affordable homeownership; irrational consumer expectations of rising housing prices; inelastic housing supply. None of these explanations, however, is capable of fully explaining the housing bubble.
This Article posits a new explanation for the housing bubble. First, it demonstrates that the bubble was a supply-side phenomenon attributable to an excess of mispriced mortgage finance: mortgage-finance spreads declined and volume increased, even as risk increased-a confluence attributable only to an oversupply of mortgage finance.
Second, it explains the mortgage-finance supply glut as resulting from the failure of markets to price risk correctly due to the complexity, opacity, and heterogeneity of the unregulated private-label mortgage-backed securities (PLS) that began to dominate the market in 2004. The rise of PLS exacerbated informational asymmetries between the financial institutions that intermediate mortgage finance and PLS investors. These intermediation agents exploited informational asymmetries to encourage overinvestment in PLS that boosted the financial intermediaries' volume-based profits and enabled borrowers to bid up housing prices.
This Article proposes the standardization of PLS as an information-forcing device. Reducing the complexity and heterogeneity of PLS would facilitate accurate risk pricing, which is necessary to rebuild a sustainable, stable housing-finance market.
The definitive account of the housing bubble that caused the Great Recession—and earned Wall Street fantastic profits. The American housing bubble of the 2000s caused the worst global financial ...crisis since the Great Depression. In this definitive account, Adam Levitin and Susan Wachter pinpoint its source: the shift in mortgage financing from securitization by Fannie Mae and Freddie Mac to "private-label securitization" by Wall Street banks. This change set off a race to the bottom in mortgage underwriting standards, as banks competed in laxity to gain market share. The Great American Housing Bubble tells the story of the transformation of mortgage lending from a dysfunctional, local affair, featuring short-term, interest- only "bullet" loans, to a robust, national market based around the thirty-year fixed-rate mortgage, a uniquely American innovation that served as the foundation for the middle class.Levitin and Wachter show how Fannie and Freddie's market power kept risk in check until 2003, when mortgage financing shifted sharply to private-label securitization, as lenders looked for a way to sustain lending volume following an unprecedented refinancing wave. Private-label securitization brought a return of bullet loans, which had lower initial payments—enabling borrowers to borrow more—but much greater back- loaded risks. These loans produced a vast oversupply of underpriced mortgage finance that drove up home prices unsustainably. When the bubble burst, it set off a destructive downward spiral of home prices and foreclosures.Levitin and Wachter propose a rebuild of the housing finance system that ensures the widespread availability of the thirty-year fixed-rate mortgage, while preventing underwriting competition and shifting risk away from the public to private investors.
We examine the factors that determine the likelihood of borrowers using nontraditional mortgages (NTMs) prior to the Great Recession. Borrower choice depends on borrower characteristics such as ...income, levels of asset holdings, credit score, and age, and on market factors such as house price appreciation as shown in the literature. We add to the literature by showing that lending competition was significantly associated with the early growth of NTMs while growth of nonbank lending was associated with a later‐stage expansion of NTMs. We also find that state‐level antipredatory lending laws were more effective in restraining the origination of NTMs in markets with higher levels of lending competition.
We identify the effects of greening vacant lots on nearby housing prices and show how neighborhood attributes matter to these outcomes. Using data from a longstanding program in Philadelphia, we find ...that prices for houses within 1,000 feet of a greened vacant lot rise by about 4%, consistent with the literature, with the effect size increasing over time. Using the extensive data available in Philadelphia, we show how these effects vary by the attributes of the neighborhood in which they occur, with larger effects in areas with a high share of vacant land and higher‐than‐average median household incomes, with peak responses estimated at 19% and 15%, respectively. We demonstrate the importance of sample selection bias adjustment for identification of the effect of vacant lot greening.
Perspectives on Fair Housing Reina, Vincent J; Pritchett, Wendell E; Wachter, Susan M ...
2020, 2020-11-20
eBook
Title VIII of the Civil Rights Act of 1968, known as the Fair Housing Act, prohibited discrimination in the sale, rent, and financing of housing based on race, religion, and national origin. However, ...manifold historical and contemporary forces, driven by both governmental and private actors, have segregated these protected classes by denying them access to homeownership or housing options in high-performing neighborhoods. Perspectives on Fair Housing argues that meaningful government intervention continues to be required in order to achieve a housing market in which a person's background does not arbitrarily restrict access.The essays in this volume address how residential segregation did not emerge naturally from minority preference but rather how it was forced through legal, economic, social, and even violent measures. Contributors examine racial land use and zoning practices in the early 1900s in cities like Atlanta, Richmond, and Baltimore; the exclusionary effects of single-family zoning and its entanglement with racially motivated barriers to obtaining credit; and the continuing impact of mid-century "redlining" policies and practices on public and private investment levels in neighborhoods across American cities today. Perspectives on Fair Housing demonstrates that discrimination in the housing market results in unequal minority households that, in aggregate, diminish economic prosperity across the country.Amended several times to expand the protected classes to include gender, families with children, and people with disabilities, the FHA's power relies entirely on its consistent enforcement and on programs that further its goals. Perspectives on Fair Housing provides historical, sociological, economic, and legal perspectives on the critical and continuing problem of housing discrimination and offers a review of the tools that, if appropriately supported, can promote racial and economic equity in America. Contributors: Francesca Russello Ammon, Raphael Bostic, Devin Michelle Bunten, Camille Zubrinsky Charles, Nestor M. Davidson, Amy Hillier, Marc H. Morial, Eduardo M. Peñalver, Wendell E. Pritchett, Rand Quinn, Vincent J. Reina, Akira Drake Rodriguez, Justin P. Steil, Susan M. Wachter.
We study the impact of global food price shocks on domestic inflation in a large group of countries. For advanced economies, a 10% increase in global food inflation raises domestic inflation by about ...0.5 percentage point after a year; however, the impact has declined over time and become less persistent. The global food price shocks of the 2000s had a much bigger impact on domestic inflation in emerging and developing economies than in advanced economies. This could reflect the smaller share of food in the consumption baskets in advanced economies. We also provide evidence that inflation expectations are more anchored in advanced than in emerging economies, which could also explain the smaller impact on inflation from global food price shocks.
The tightening of mortgage credit in the aftermath of the global financial crisis has been identified as a factor in the decline of homeownership in the United States to 50-year lows. In this ...article, we review findings about the role of borrowing constraints and tightened credit in lowering access to homeownership. We also discuss how institutional changes could hinder or support this access going forward.
The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down payments and short maturities. The authors compare the form of U.S. home ...mortgages today with those in other countries. The U.S. mortgage provides many more options to borrowers than are commonly provided elsewhere: American homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can prepay freely; and they can generally borrow against home equity freely. They can also obtain home mortgages at attractive terms with very low down payments. The authors discuss the nature of the U.S. government intervention in home mortgage markets that has led to the specific choices available to American homebuyers. They believe that the unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy.
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