- Housing and Mortgages in Transition Economy, John E. Anderson.
- Underwriting Sustainable Homeownership: The Federal Housing Administration and the Low Down Payment Loan, David J. Reiss, Georgia Law Review, Forthcoming.
- Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program, Sumit Agarwal, Gene Amromin, Souphala Chomsisengphet, Tomasz Piskorski, Amit Seru & Vincent W. Yao, NBER Working Paper No. w21512.
- Stock Prices, Regional Housing Prices, and Aggregate Technology Shocks, Jiro Yoshida.
- Information Diffusion in the U.S. Real Estate Investment Trust Market, Masaki Mori, Journal of Real Estate Finance and Economics, Vol. 51, No. 2, 2015.
- A Neurological Explanation of Strategic Mortgage Default, Michael Joseph Seiler & Eric Walden, Journal of Real Estate Finance and Economics, Vol. 51, No. 2, 2015.
- The City as a Commons, Sheila Foster & Christian Iaione.
- Attempting to Collect on Barred Mortgages, Roger Bernhardt.
Tag Archives: mortgage default
Wednesday’s Academic Roundup
- The Effect of Negative Equity on Mortgage Default: Evidence from HAMP PRA, Therese C. Scharlemann & Stephen H. Shore, Office of Financial Research Working Paper No. 15-06.
- Housing Tax Reform and Foreclosure Rates, Richard Dusansky & Firas Zebian, Journal of Real Estate Finance and Economics, Vol. 51, No. 3, 2015.
- Price Jump Risk in the US Housing Market, Robert I. Webb, Jian Yang & Jin Zhang, Journal of Real Estate Finance and Economics, 2015 Forthcoming.
- Statutory Right of Redemption and the Selling Price of Foreclosed Houses, Bruce L. Gordon & Daniel T. Winkler, Journal of Real Estate Finance and Economics, Vol. 51, No. 3, 2015.
- Revealing the Rapist Next Door: Property Impacts of the Sex Offender Registry, Susan Yeh, International Review of Law and Economics, Forthcoming; George Mason Legal Studies Research Paper No. LS 15-06; George Mason Law & Economics Research Paper No. 15-24.
- An Investigation into Sentiment-Induced Institutional Trading Behavior and Asset Pricing in the REIT Market, Prashant Das, Julia Freybote & Gianluca Marcato, Journal of Real Estate Finance and Economics, Vol. 51, No. 2, 2015.
- Leveraged Bubbles, Oscar Jorda, Moritz Schularick & Alan M. Taylor, CEPR Discussion Paper No. DP10781.
Foreclosures & Credit Card Debt
Paul S. Calem, Julapa Jagtiani and William W. Lang have posted Foreclosure Delay and Consumer Credit Performance to SSRN. Effectively, it argues that long foreclosure delays may have reduced the credit card default rate because homeowners in default were able to pay down their credit card debt while living for free in their homes. The abstract reads,
The deep housing market recession from 2008 through 2010 was characterized by a steep rise in the number of foreclosures and lengthening foreclosure timelines. The average length of time from the onset of delinquency through the end of the foreclosure process also expanded significantly, averaging up to three years in some states. Most individuals undergoing foreclosure were experiencing serious financial stress. However, the extended foreclosure timelines enabled mortgage defaulters to live in their homes without making mortgage payments until the end of the foreclosure process, thus providing temporary income and liquidity benefits from lower housing costs. This paper investigates the impact of extended foreclosure timelines on borrower performance with credit card debt. Our results indicate that a longer period of nonpayment of mortgage expenses results in higher cure rates on delinquent credit cards and reduced credit card balances. Foreclosure process delays may have mitigated the impact of the economic downturn on credit card default.
The authors conclude,
our findings indicate that households do not consume all the benefits from temporary relief from housing expenses; instead, they use that temporary relief to cure delinquent credit card debt and reduce their credit card balances. Interestingly, we find that payment relief from loan modifications has a similar impact to payment relief from longer foreclosure timelines; both are associated with curing card delinquency and reducing card balances.
These households, however, are likely to become delinquent on their credit cards again within six quarters following the end of the foreclosure process. Thus, the results suggest that there may be added risk for nonmortgage lenders when foreclosures are completed and households must incur the transaction costs of moving and incur significant housing expenses once again. This implies an additional dimension of risk to credit card lenders that has not been observed previously. (23)
I am not sure what to make of these findings for borrowers, regulators, credit card lenders or mortgage lenders. Would a utility-maximizing borrower run up their credit card debt while in foreclosure? Should states seek to change foreclosure timelines to change consumer or lender behavior? Should profit-maximizing credit card lenders seek to further limit borrowing upon a mortgage default? What should profit-maximizing mortgage lenders do? I have lots of questions but no good answers yet.
First-Time Homebuyers, You’re Okay
Saty Patrabansh of the Office of Policy Analysis and Research at the Federal Housing Finance Agency has posted a working paper, The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment.
While this is a dry read, it yields a pretty important insight for first-time homebuyers: you’re okay, just the way you are! The abstract reads,
This paper examines the loan performance of Fannie Mae and Freddie Mac first-time homebuyer mortgages originated from 1996 to 2012. First-time homebuyer mortgages generally perform worse than repeat homebuyer mortgages. But first-time homebuyers are younger and have lower credit scores, home equity, and income than repeat homebuyers, and therefore are comparatively less likely to withstand financial stress or take advantage of financial innovations available in the market. The distributional make-up of first-time homebuyers is different than that of repeat homebuyers in terms of many borrower, loan, and property characteristics that can be determined at the time of loan origination. Once these distributional differences are accounted for in an econometric model, there is virtually no difference between the average first-time and repeat homebuyers in their probabilities of mortgage default. Hence, the difference between the first-time and repeat homebuyer mortgage defaults can be attributed to the difference in the distributional make-up of the two groups and not to the premise that first-time homebuyers are an inherently riskier group. However, there appears to be an inherent difference in the prepayment probabilities of first-time and repeat homebuyers holding borrower, loan, and property characteristics constant. First-time homebuyers are less likely to prepay their mortgages compared to repeat homebuyers even after accounting for the distributional make-up of the two groups using information known at the time of loan origination.
So, just to be clear, being a first-time homebuyer is not inherently risky. Rather, the risks arising from transactions involving first-time homebuyers are the same as those involving repeat homebuyers: loan characteristics, property characteristics and other borrower characteristics.
Wednesday’s Academic Roundup
- The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment, Saty Patrabansh, FHFA Working Paper 15-2.
- Gender Bias and Credit Access, Steven Ongena & Alexander A. Popov, ECB Working Paper No. 1822.
- Explaining the Boom-Bust Cycle in the U.S. Housing Market: A Reverse-Engineering Approach, Paolo Gelain, Kevin J. Lansing & Gisle James Natvik, Norges Bank Working Paper 11, 2014.
- Monetary Policy, Hot Housing Markets and Leverage, Christoph Ungerer, FEDS Working Paper No. 2015-048.
- Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005, Atif R. Mian & Amir Sufi, Chicago Booth Research Paper No. 15-16.
Wednesday’s Academic Roundup
- Valuing Control, Peter C. DiCola, 113 Michigan Law Review 663 (2015).
- A Framework for Understanding Property Regulation and Land Use Control from a Dynamic Perspective, Donald J. Kochan, 4 Michigan Journal of Environmental & Administrative Law 303 (2015).
- The Use of Listed Real Estate Securities in Asset Management, Alex Moss & Andrew Baum.
- Financial Literacy, Broker-Borrower Interaction, and Mortgage Default, James Neil Conklin.
- Mortgage Default, Juan Carlos Hatchondo, Leonardo Martinez & Juan M. Sanchez.
Wednesday’s Academic Roundup
- Airbnb and the Housing Segment of the Modern ‘Sharing Economy’: Are Short-Term Rental Restrictions an Unconstitutional Taking?, Jamila Jefferson-Jones, Hastings Constitutional Law Quarterly, Vol. 42, 2015.
- The Use of Tenant Screening Reports and Tenant Blacklisting, Gerald Lebovits & Jen M. Addonizio, LEGALEase Pamphlet, New York State Bar Association (2015).
- Banks, Break-Ins, and Bad Actors in Mortgage Foreclosure, Christopher K. Odinet, University of Cincinnati Law Review, Vol. 83, No. 4, 2015.
- Determinants of Mortgage Default and Consumer Credit Use: The Effects of Foreclosure Laws and Foreclosure Delays, Sewin Chan, Andrew Haughwout, Andrew T. Hayashi, & Wilbert Van der Klaauw, FRB of New York Staff Report No. 732.
- The Effect of Mortgage Payment Reduction on Default: Evidence from the Home Affordable Refinance Program, Douglas A. McManus, Jared Janowiak, Lu Ji, Kadiri Karamon & Jun Zhu, Real Estate Economics.
