reference library

The mortgage market experienced a historic boom in 2020, with record origination volumes and lender profits. While many borrowers benefited from record-low mortgage rates, the pass-through of lower rates to…
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There are two prevailing theories of borrower default: strategic default—when debt is too high relative to the value of the house—and adverse life events—such that the monthly payment is too…
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Market share of conforming-size, home purchase mortgage originations has steadily and substantially shifted from banking institutions to nonbank lenders over recent years. In 2017, nonbanks originated more than 1.8 million…
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Recent evidence suggests an increasing risk of natural disasters of the magnitude of hurricane Katrina and Sandy. Concurrently, the number and volume of flood insurance policies has been declining since…
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Pre-crisis estimates of the jumbo-conforming spread, utilizing a variety of methodologies, ranged from 10 to 25 basis points. In the post-crisis period, this spread has decreased and has been negative…
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We investigate the effect of house prices on household borrowing using administrative mortgage data from the United Kingdom and a new empirical approach. The data contain household-level information on house…
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This paper shows that a macro model with segmented financial markets can generate sizable movements in housing prices in response to changes in credit conditions. We establish theoretically that reductions…
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This paper seeks to refine our understanding of how refinancing a mortgage affects household outcomes. This issue has attracted particular attention in the wake of the Great Recession, however, there…
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We show that the distribution of combined loan-to-value ratios (CLTVs) for purchase mortgages in the U.S. has been remarkably stable over the last 25 years. But there was a dramatic…
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Between 1998 and 2006, house prices in the United States rose by about 90 percent but subsequently experienced a sharp decline by about a third until 2010. These house‐​price developments…
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We present a model in which households facing income and housing-price shocks use long-term mortgages to purchase houses. Interest rates on mortgages reflect the risk of default. The model accounts…
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We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, is efficient but may not be implementable. First, when expected…
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Since the onset of the Great Recession, an explosion of both theoretical and empirical research has investigated how the financial crisis emerged and how it was transmitted to the real…
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We provide new, time-varying estimates of the housing wealth effect back to the 1980s. We exploit systematic differences in city-level exposure to regional house price cycles to instrument for house…
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The U.S. government guarantees a majority of residential mortgages, which is often justified as a means to promote homeownership. In this paper we use property-level data to estimate the effect…
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At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new…
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The Community Reinvestment Act (CRA) requires banks to lend to low- and moderate-income (LMI) households in the areas where they take deposits. But it has become obsolete. When the CRA…
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Fannie Mae and Freddie Mac were originally chartered as government-sponsored enterprises (GSEs) to ensure a stable supply of credit for mortgages nationwide. They dominate the secondary (resale) market for residential…
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Recent evidence suggests an increasing risk of natural disasters of the magnitude of hurricane Katrina and Sandy. Concurrently, the number and volume of flood insurance policies has been declining since…
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We provide evidence that credit lines offer liquidity insurance to borrowers. Borrowers are able to extensively use their credit lines in recessions and ahead of credit line cuts. In fact…
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We study mortgage design features aimed at stabilizing the macroeconomy. We model overlapping generations of mortgage borrowers and an infinitely lived risk-averse representative mortgage lender. Mortgages are priced using an…
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We review an empirical literature that studies the role of social interactions in driving economic and financial decision making. We first summarize recent work that documents an important role of…
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In this paper, we explore dynamic changes in the capitalization of sea level rise (SLR) risk in housing and mortgage markets. Our results suggest a disconnect in coastal Florida real…
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We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing into a lower-rate mortgage on borrower balance sheet outcomes. Refinancing substantially reduces…
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Was the mortgage boom fueled by optimism around house prices, or did misaligned incentives in the mortgage industry also play a role? In this paper, we provide novel evidence of…
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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…
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The risk premium puzzle is worse than you think. Using a new database for the U.S. and 15 other advanced economies from 1870 to the present that includes housing as…
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Aggregate housing demand shocks are an important source of house price fluctuations in the standard macroeconomic models, and through the collateral channel, they drive macroeconomic fluctuations. These reduced-form shocks, however,…
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This paper uses a structural model to show that foreclosures played a crucial role in exacerbating the recent housing bust and to analyze foreclosure mitigation policy. We consider a dynamic…
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The Great Recession and its aftermath saw the worst relative performance of young firms in at least 35 years. More broadly, as we show, young-firm activity shares move strongly with…
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A branch manager gets home loans for borrowers with weak credit or low incomes—and taxpayers back him up. Prashant Gopal Bloomberg Businessweek May 24, 2018 External Link

By exploiting variation in state capital gains taxation as an instrument, we analyze the economic consequences of housing speculation during the U.S. housing boom in the 2000s. We find that…
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We construct a new measure of the changing generosity of deposit insurance for many countries, empirically model the international influences on the adoption and generosity of deposit insurance, and show…
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The Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, and the Federal Deposit Insurance Corporation (collectively, the agencies) are issuing a notice…
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This paper provides a comprehensive account of the evolution of default risk for newly originated home purchase loans since 1990. We bring together several data sources to produce this history,…
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We study risk management in financial institutions using data on hedging of interest rate and foreign exchange risk. We find strong evidence that better capitalized institutions hedge more, controlling for…
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Credit supply expansion fuels housing speculation, generating a boom and bust in house prices. U.S. zip codes more exposed to the 2003 acceleration of the private label mortgage securitization (PLS)…
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Heavily depressed housing prices and high contemporaneous rates of foreclosure have been observed in many low-income and minority neighbourhoods in US cities, suggesting foreclosures may have spillover effects within neighbourhoods….
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The adoption of new technologies is transforming the mortgage industry. For instance, borrowers can now obtain a mortgage entirely online, and lenders use increasingly sophisticated methods to verify borrower income…
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In the U.S. mortgage market, private mortgage insurance (PMI) is mandated for high-leverage mortgages purchased by Fannie Mae and Freddie Mac to serve as a private market check on GSE…
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In January 2021, the Consumer Financial Protection Bureau will face a decision: to renew its special definition for Qualified Mortgages (QMs) made by Fannie Mae and Freddie Mac, abolish that…
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At their peak in 2005, roughly 60 percent of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier…
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This paper introduces two methods of hiding loan losses and analyzes how they affect a bank’s loan interest income, payments on deposits, liquidity and moral hazard. The analysis reveals that…
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We analyze the relationship between asset price bubbles and systemic risk, using bank-level data covering almost thirty years. Systemic risk of banks rises already during a bubble’s build-up phase, and…
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We follow a representative panel of millions of consumers in the U.S. from 2007 to 2017 and document several facts on the long-term effects of the Great Recession. There were…
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We use variation in mortgage modifications to disentangle the impact of reducing long-term obligations with no change in short-term payments (“wealth”), and reducing short-term payments with approximately no change in…
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Pure option-theoretic mortgage pricing models assume that the borrower will default immediately when the value of the property drops to the level of the mortgage value (“ruthless” default) rather than…
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This paper presents a unified model of the default and prepayment behavior of homeowners in a proportional hazard framework. The model uses the option-based approach to analyze default and prepayment,…
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We measure the effect of an anti-predatory pilot program (Chicago, 2006) on mortgage default rates to test whether predatory lending was a key element in fueling the subprime crisis. Under…
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This article investigates the boom and bust in U.S. homeownership rates over the 2000–2010 period. Using individual-level census data, we first estimate 204 homeownership regressions stratified by household age (21,…
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Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of…
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We evaluate the effects of the 2009 Home Affordable Modification Program (HAMP) that provided intermediaries with sizeable financial incentives to renegotiate mortgages. HAMP increased intensity of renegotiations and prevented substantial…
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In the context of an overlapping-generations model, we show that liquidity constraints on households (i) raise the saving rate, (ii) strengthen the effect of growth on saving, (iii) increase the…
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Two of the largest government-sponsored enterprises (GSEs), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), receive government subsidies estimated to be worth…
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Fannie Mae and Freddie Mac are a unique part of [federal housing policy]. Though they appear to be “normal” corporations, each with shares that trade on the New York Stock…
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To assess whether homeowners know their house values and mortgage terms, we compare the distributions of these variables in the household-reported 2001 Survey of Consumer Finances (SCF) to the distributions…
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To augment its voice in the GSE-reform debate, Countrywide dispensed favors to VIPs who it believed might be worthwhile to the company. This group of borrowers included legislators, congressional staffers,…
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While the theoretical and empirical finance literature has focused almost exclusively on enterprise credit, about half of credit extended by banks to the private sector in a sample of 45…
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A fall in house prices due to a change in fundamental value redistributes wealth from those long housing (for whom the fundamental value of the house they own exceeds the…
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We develop a methodology to study whether and how a financial-sector crisis can spill over to the real economy, and apply it to the case of the ongoing subprime mortgage…
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How did problems with subprime mortgages result in a systemic crisis, a panic? The ongoing Panic of 2007 is due to a loss of information about the location and size…
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The Fannie Mae-Freddie Mac crisis may have been the most avoidable financial crisis in history. Economists have long complained that the risks posed by the government-sponsored enterprises were large relative…
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We model the panic of 2008 as part of the wealth and substitution effects deriving from a housing price crash that began in 2006. The dissipation of the wealth effect…
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We examine the determinants of congressional voting behavior on two of the most significant pieces of federal legislation in U.S. economic history: the American Housing Rescue and Foreclosure Prevention Act…
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The expansion in risky mortgages to underqualified borrowers was encouraged by the federal government. The growth of “creative” nonprime lending followed Congress’s strengthening of the Community Reinvestment Act, the Federal…
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Using individual-level data on homeowner debt and defaults from 1997 to 2008, we show that borrowing against the increase in home equity by existing homeowners is responsible for a significant…
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Many commentators have argued that if the Federal Reserve had followed a stricter monetary policy earlier this decade when the housing bubble was forming, and if Congress had not deregulated…
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The U.S. Department of Housing and Urban Development has long been plagued by scandals, mismanagement, and policy failures. Most recently, HUD’s subsidies and failed oversight of Fannie Mae and Freddie…
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Although long obscured by the Great Depression, the nationwide “bubble” that appeared in the early 1920s and burst in 1926 was similar in magnitude to the recent real estate boom…
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We show that household leverage as of 2006 is a powerful statistical predictor of the severity of the 2007 to 2009 recession across U.S. counties. Counties in the U.S. that…
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I estimate the credit supply effect of the Underserved Areas Goal (UAG), which establishes GSE purchase goals for mortgages to lower-income and minority neighborhoods. Taking advantage of discontinuous census tract…
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Prior to the subprime crisis, mortgage brokers originated about 65% of all subprime mortgages. Yet little is known about their behavior during the runup to the crisis. Using data from…
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Between 1996 and 2006, real housing prices rose by 53 percent according to the Federal Housing Finance Agency price index. One explanation of this boom is that it was caused…
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The paper studies how high leverage and crises can arise as a result of changes in the income distribution. Empirically, the periods 1920-1929 and 1983-2008 both exhibited a large increase…
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An unsustainable weakening of credit standards induced a US mortgage lending and housing bubble, whose consumption impact was amplified by innovations altering the collateral role of housing. In countries with…
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Using peer-to-peer (P2P) lending as an example, we show that learning by doing plays an important role in alleviating the information asymmetry between market players. Although the P2P platform (Prosper.com)…
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What is generally agreed is that subprime mortgages disproportionately contributed both to the severity of the crisis and to the size of losses imposed upon the taxpayer. What remains in…
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Since the credit crunch began in 2007, private sector financing for residential mortgages has been virtually non-existent. At the end of 2010, government-backed organizations-including Fannie Mae, Freddie Mac and the…
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The federal government recently placed Fannie Mae and Freddie Mac, the government chartered, privately owned mortgage finance companies, in conservatorship. These two massive companies are profit driven, but as government-sponsored…
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The United States’ market-government hybrid mortgage system is unique in the world. No other nation has such heavy government intervention in housing finance. This hybrid system nurtured the excessively risky…
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The deduction of mortgage interest from federal income taxes subsidizes homeownership, making it more affordable to become a homeowner. Or so we’ve been told. It is a highly popular tax…
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We provide novel estimates of the timing, magnitudes, and potential determinants of the start of the last housing boom across American neighborhoods and metropolitan areas (MSAs) using a rich new…
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We investigate the characteristics and the default behavior of households who take out complex mortgages. Unlike traditional fixed rate or adjustable rate mortgages, complex mortgages are not fully amortizing and…
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We explore a mostly undocumented but important dimension of the housing market crisis: the role played by real estate investors. Using unique credit-report data, we document large increases in the…
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This paper argues that the U.S. bankruptcy reform of 2005 played an important role in the mortgage crisis and the current recession. When debtors file for bankruptcy, credit card debt…
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The last fifteen years have been marked by a dramatic boom-bust cycle in real estate prices, accompanied by economically large fluctuations in international capital flows. We argue that changes in…
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While Fannie Mae, Freddie Mac, and private subprime lenders have deservedly garnered the bulk of attention and blame for the mortgage crisis, other federal programs also distort our mortgage market…
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The mortgage finance market has leaned heavily on government support over the past few years. More than 90 percent of mortgages originated in 2011 were securitized by government entities using…
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We use data from credit report and deeds records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with…
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Yes, it did. We use exogenous variation in banks’ incentives to conform to the standards of the Community Reinvestment Act (CRA) around regulatory exam dates to trace out the effect…
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The great housing convulsion that buffeted America between 2000 and 2010 has historical precedents, from the frontier land boom of the 1790s to the skyscraper craze of the 1920s. But…
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The increase in defaults in the subprime mortgage market is widely held to be one of the causes behind the recent financial turmoil. Key issues of policy concern include quantifying…
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The recent banking crisis highlights the challenges faced in credit intermediation. New online peer-to-peer lending markets offer opportunities to examine lending models that primarily cater to small borrowers and that…
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We present evidence that high concentration in local mortgage lending reduces the sensitivity of mortgage rates and refinancing activity to mortgage-backed security (MBS) yields. A decrease in MBS yields is…
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The boom and subsequent bust of housing construction and prices over the 2000s is widely regarded as a principal contributor to the financial panic of 2007 and the ensuing “Great…
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Over the boom period, however, the traditional methods of mortgage finance were undergoing a series of dramatic changes. While mortgages had been fixed- or adjustable- rate in the past, nontraditional…
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This paper analyzes options for reforming the U.S. housing finance system in view of the failure of Fannie Mae and Freddie Mac as government sponsored enterprises (GSEs). The options considered…
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The financial crisis showed, once again, that neglecting real estate booms can have disastrous consequences. In this paper, we spell out the circumstances under which a more active policy agenda…
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We examine how special interests, measured by campaign contributions from the mortgage industry, and constituent interests, measured by the share of subprime borrowers in a congressional district, may have influenced…
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Using data on household portfolios and mortgage originations, we find that households residing in a city with few publicly traded firms headquartered there are more likely to own an investment…
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