This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

« Back to Results

Mortgages III

Paper Session

Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM

Loews Philadelphia, Washington C
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Lynn Fisher, Mortgage Bankers Association

How Do Mortgage Refinances Affect Debt, Default, and Spending? Evidence from HARP

Andreas Fuster
,
Federal Reserve Bank of New York
Joshua Abel
,
Harvard University

Abstract

We use quasi-random access to the Home Affordable Refinance Program (HARP) to identify the causal effect of refinancing a mortgage on borrower balance sheet outcomes. We find that on average, refinancing into a lower-rate mortgage enabled borrowers to cut their default rates on mortgages by around 40% and their rates of serious delinquency on non-mortgage debts by about 25%. Refinancing also causes borrowers to expand their use of debt instruments, such as auto loans, home equity lines of credit (HELOCs), and other consumer debts that are proxies for spending. All told, refinancing led to a net increase in debt equal to about 20% of the savings on mortgage payments. This number combines increases (new debts) of about 60% of the mortgage savings and decreases (pay-downs) of about 40% of those savings. Borrowers with low FICO scores or low levels of unused revolving credit grow their auto and HELOC debt more strongly after a refinance, but also reduce their bank card balances by more. Finally, we show that take-up of the refinancing opportunity was strongest among borrowers that were in a relatively better financial position to begin with.

How Does Mortgage Debt Affect Household Consumption? Micro Evidence From China

Ying Fan
,
Tsinghua University
Abdullah Yavas
,
University of Wisconsin-Madison

Abstract

The high growth rate of mortgage debt in various emerging and developed economies has captured the headlines following the financial crisis. In this paper, we investigate how mortgage debt impacts household consumption behavior and various components of household consumption. Utilizing a comprehensive household survey data from China, we show that households with a mortgage consume a higher portion of their income than households without a mortgage. This is in line with the argument that having a mortgage reduces the uncertainty that the household faces regarding how much to save each month in order to be able to own a house, and this reduced uncertainty leads to lower monthly savings for the purpose of buying a house. We also find that among households with a mortgage, those who spend a larger share of their income on mortgage payments spend less of their income on consumption, reflecting the crowding out effect of mortgage payments on household consumption. Furthermore, we show that a government policy of decreasing the maximum loan-to-value ratio has a significant impact on consumption behavior of households. The current paper offers the first evidence of the impact of growing mortgage debt on consumption behavior of households. Our results will have implications for government policies that encourage mortgage borrowing.

Confirmation Bias of Collateral

Michael Eriksen
,
University of Cincinnati
Hamilton Fout
,
Fannie Mae
Mark Palim
,
Fannie Mae
Eric Rosenblatt
,
Fannie Mae

Abstract

Borrowers and lenders have financial incentives to collude with appraisers to distort appraised values above contract prices. We define this tendency for appraisers to confirm the contract price as confirmation bias and show 92% of 1.7m initial appraised values of residential property were equal to or above the contract price between 2013 and 2015, and 28% were exactly equal to the contract price. We initially focus on a subset of properties that were appraised twice within six months and only one appraiser was informed of the contract price to better understand how knowledge of the contract price distorts appraiser behavior and estimated values. The appraiser informed of the contract price reported the property to be higher quality and applied more weight to higher-valued comparable transactions. Using individual appraiser fixed effects and the larger sample of 1.7m properties, we similarly find that the same appraiser is more likely to apply additional weight to higher-valued comparable transactions when an equal weight would have otherwise resulted in an appraised value less than contract price. Appraisers were most likely to apply unequal weights when they had a greater share of appraisals with the same financial institution, loan officer, and real estate broker.

Information Asymmetry in Private-label Mortgage Securitization: Evidence From Allocations to Affiliated Funds

Brent Ambrose
,
Pennsylvania State University
Moussa Diop
,
University of Wisconsin
Walter D'Lima
,
University of Notre Dame
Mark Thibodeau
,
Pennsylvania State University

Abstract

To identify the role of asymmetric information on collateral quality in the placement of MBS issues, we examine the placement of a sample of 405 non-agency MBS deals containing approximately 1.2 million underlying mortgages. We identify the role of information asymmetry in the placement of MBS by estimating the ex ante and ex post prepayment and default probabilities for mortgages collaterlized across deals that are classified as either affiliated or unaffiliated based on the link between investors and the underwriter-issuers.
Discussant(s)
Michael Fratantoni
,
Mortgage Bankers Association
Gary Engelhardt
,
Syracuse University
Lauren Lambie-Hanson
,
Federal Reserve Bank of Philadelphia
Benjamin Kay
,
U.S. Office of Financial Research
JEL Classifications
  • G2 - Financial Institutions and Services
  • E4 - Money and Interest Rates