We study how intermediaries – mortgage servicers – shaped the implementation of mortgage forbearance during the COVID-19 pandemic and use servicer-level variation to trace out the causal effects of ...forbearance on borrowers. Forbearance provision varied widely across servicers. Small servicers, nonbanks, and especially nonbanks with small liquidity buffers, facilitated fewer forbearances and saw a higher incidence of forbearance-related complaints. Easier access to forbearance substantially increased mortgage nonpayment but also reduced delinquencies outside of forbearance. Part of the liquidity from forbearance was used to reduce credit card debt, but most was saved or used for nondurable consumption.
This article examines information and incentive problems that can exist in the market for commercial mortgages that are pooled and repackaged as commercial mortgage-backed securities (CMBSs). We find ...that mortgages that are originated by institutions with large negative stock returns in the quarters prior to the origination date tend to have higher credit spreads and default more than other mortgages with similar observable characteristics. Properties financed with these mortgages also exhibit weaker post-securitization operating performance. In addition, stock price loser institutions are anxious to securitize mortgages they originate more quickly. Finally we find that credit rating agencies require higher levels of subordination for CMBS pools (i.e., view these pools as riskier) that include more mortgages originated by underperforming originators. This evidence is consistent with reputation models in which poorly performing originators have less incentive to carefully evaluate the credit quality of prospective borrowers, thereby letting relatively riskier mortgages pass through their weaker screening standards.
•US mortgage spread is a key driver of emerging market economies’ business and asset price cycles.•Quantitatively it is a more important driver than measures of global financial risk.•Its explanatory ...power increases with exposure to lending by global banks.•Its shocks are transmitted via local stock prices.
We investigate an unexplored link between the US mortgage spread and business cycle and asset price fluctuations in emerging market economies (EMEs). Controlling for changes in global financial risk, an increase in the US mortgage spread leads to substantially lower EME output, investment, consumption, house and stock prices, and to a contraction in lending by global banks to EMEs. The explanatory power of US mortgage spread shocks for EME macroeconomic fluctuations increases with EME exposure to lending by global banks. This explanatory power is greatly reduced when we turn off the response of EME stock prices to movements in the US mortgage spread in a counterfactual experiment, demonstrating the channel through which US mortgage spread shocks are transmitted to EMEs. The US mortgage spread is a key driver of business and asset price cycles in EMEs when extending the baseline model with additional domestic and foreign variables, and considering alternative country subgroups.
We simulate changes to metropolitan area home prices from reforming the Mortgage Interest Deduction (MID). Price simulations are based on an extended user cost model that incorporates two dimensions ...of behavioral change in home buyers: sensitivity of borrowing and the propensity to use tax deductions. We simulate prices with both inelastic and elastic supply. Our results show a wide range of price effects across metropolitan areas and prospective policies. Considering behavioral change and no supply elasticity, eliminating the MID results in average home price declines as steep as 13.5% in Washington, D.C., and as small as 3.5% in Miami-Fort Lauderdale, FL. Converting the MID to a 15% refundable credit reduces prices by as much as 1.4% in San Jose, CA, San Francisco, CA, and Washington, D.C. and increases average price in other metropolitan areas by as much as 12.1% (Miami-Fort Lauderdale). Accounting for market elasticities produces price estimates that are on average 36% as large as standard estimates.
•We simulate metro home price changes from reforming the mortgage interest deduction.•We show three different reform scenarios with both elastic and inelastic supply.•We estimate changes to leverage and itemization behavior in response to reform.•Eliminating the mortgage interest deduction reduces prices by 4 to 14%.
The massive losses that banks incurred with the meltdown of the subprime mortgage market have raised concerns about their ability to continue lending to corporations. We investigate these concerns. ...We find that firms paid higher loan spreads during the subprime crisis. Importantly, the increase in loan spreads was higher for firms that borrowed from banks that incurred larger losses. These results hold after we control for firm-, bank-, and loan-specific factors, and account for endogeneity of bank losses. These findings, together with our evidence that borrowers took out smaller loans during the crisis when they borrowed from banks that incurred larger losses, lend support to the concerns about bank lending following their subprime losses.
Google Search Queries, Foreclosures, and House Prices Damianov, Damian S.; Wang, Xiangdong; Yan, Cheng
Journal of real estate finance and economics/The Journal of real estate finance and economics,
08/2021, Volume:
63, Issue:
2
Journal Article
Peer reviewed
Open access
We study whether Google search behavior for “mortgage assistance” and “foreclosure help” aggregated in the mortgage default risk indicator (MDRI) of Chauvet et al. (
2016
) helps predict future house ...prices and foreclosures in local residential markets. Using a long-run equilibrium model, we disaggregate house prices into their fundamental and bubble components, and we find that MDRI dampens both components of house prices. This negative relationship is robust to various model specifications and time horizons. A higher intensity of search online, however, is associated with lower future foreclosure rates. We also find that foreclosure rates increase after a decline in the fundamental component of home values, but are not sensitive to their transitory (bubble) component. Foreclosure rates are higher in metropolitan areas located in non-recourse states. We interpret these findings as evidence for strategic household behavior. Our paper sheds new light on the predictive power of household sentiment derived from Google searches on prices and foreclosure rates in local housing markets.
The mortgage foreclosure process was prolonged after the financial crisis. I analyze its impact on mortgage defaults and post-foreclosure modifications. When a household fails to repay a mortgage, ...the delinquent household can stay in its home without paying rent or making a mortgage payment until the foreclosure process terminates, leading to an increase in defaults. My quantitative exercise shows that unexpected declines in house prices with foreclosure delays that mirror the financial crisis triple the mortgage delinquency rate, while it temporarily reducing the foreclosure rate by half. An increase in mortgage defaults motivates financial intermediaries to voluntarily modify loan terms after initiating the foreclosure process to mitigate their losses.
Despite decades of government reform, the American housing credit system continues to mirror long‐standing patterns of racial segregation and inequality. Consistent with this trend, the current ...housing crisis reveals an unusually high concentration of subprime mortgage activity and property foreclosures in non‐white residential settlements across the nation. Given the generally accepted premise of market neutrality, this case study of lending patterns in Sacramento, California, questions why US housing market exchanges continue to produce racially disparate outcomes and seeks to identify the ideological practices in which race is deployed, informs state and private economic action and shapes contemporary credit market practices.
Résumé
Malgré des décennies de réformes gouvernementales, le système de crédit immobilier américain reflète toujours les anciens schémas de ségrégation raciale et d’inégalité. Conforme à cette logique, la crise du logement actuelle révèle une concentration étonnamment élevée de prêts hypothécaires à risque (subprime) et de saisies immobilières dans les quartiers résidentiels non‐blancs du pays. Considérant l’hypothèse communément admise de la neutralité du marché, cette étude de cas sur les schémas de prêts à Sacramento (Californie) analyse les raisons pour lesquelles les transactions immobilières continuent à produire des résultats distinctifs au plan racial; elle identifie également les pratiques idéologiques dans lesquelles la race intervient, guide l’action économique de l’État et du secteur privé, et façonne les pratiques contemporaines sur le marché du crédit.
This paper explores the geography of bank lending to small and medium-sized enterprises (SMEs) and tests the argument that large institutions with complex organizational structures are better able to ...filter 'hard' information than 'soft' information. Mortgage lending is used as a control to illustrate the case of 'hard' and 'soft' information. Using data on individual bank lending to SMEs and mortgages by postcode area in Great Britain for the period 2013(2)-2014(4), the paper explains the spatial dispersion of SME lending in the UK in terms of geographical distance and supports the policy of establishing a geographically decentralized financial system as a counterbalance.
Aging and urban house prices Hiller, Norbert; Lerbs, Oliver W.
Regional science and urban economics,
09/2016, Volume:
60
Journal Article
Peer reviewed
Open access
This paper investigates how changes to the age distribution of cities' resident populations shape the growth rate of local house prices in different market segments. For estimation purposes, we ...combine city-level demographic information with detailed housing price data for 87 German cities over 1995–2014. We show that house prices and key demographic variables exhibit strong cross-section dependence but are panel stationary in first differences when this form of dependence is accounted for. Employing a mixed-regressive spatial panel model that incorporates spatial fixed effects as well as changes in city size, purchasing power and mortgage rates, we find that real urban house price appreciation tends to be substantially lower in cities that age more rapidly. Population aging has heterogeneous effects across housing segments: sales price growth of condominiums and single-family homes is negatively related to stronger growth of the old-age dependency ratio, while a positive association is found for aging and real rent growth.
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