Download or read book Essays on the U S Mortgage Market written by Chen Zheng and published by . This book was released on 2021 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies different aspects of the U.S. mortgage market, an important sector of the entire economy. The first chapter focus on the refinance market for residential mortgage, while the second and third chapter explores the previously overlooked non-agency mortgage servicing industry. The first chapter (joint with Xiaoye Tian) studies the unintended consequences arising from program design, and how it augments the market power of incumbent lenders, in the context of a federal program called Home Affordable Refinance Program. We build a dynamic discrete choice model of refinance decision where the payoff is generated from a search and negotiation process. We estimate the model using data on program participation and pricing decision. The estimation exploits a significant change to the program design that gives exogenous variation in the competitive advantage of incumbent lenders under the program. In a counterfactual where the advantage granted by program design is shut down, we find that it leads to an average welfare improvement of $4,977. The insight from this study could apply to other policies whose implementation depends on intermediaries with incumbency advantage with respect to targeted agents. The second chapter (joint with Moussa Diop) explores incentive issues associated with the servicer compensation structure in non-agency securitizations. First, we document key stylized facts on servicing fees. We show that they decrease with loan quality, loan amount, and loan maturity; suggest economies of scale in servicing; increase with the intensity of default in outstanding deals; and are lower on issuer-serviced loans. As a key contribution of this study, we show that servicing fees play a significant role in mortgage modification and foreclosure as servicers protect their cash flows, possibly to the detriment of security investors, by keeping alive loans paying high fees. As the government retrenches from housing finance, leaving room for private lending and securitization, this incentive problem in servicing will become a pressing issue for regulators to address. In the third chapter (joint with Moussa Diop), we examine the informativeness of servicing fees about the quality of non-agency mortgage collateral pools and, ultimately, the value of the mortgage-backed securities. We find that servicing fees capture unobservable credit risk that explains mortgage default and differentially affects the performance of various security classes. However, security yields at issuance appropriately reflect for this risk, which suggests that investors were more sophisticated than previously thought or that deal issuers were more transparent about collateral credit risk than recognized in the literature. The slow reemergence of non-prime lending as non-qualified mortgages makes the findings of this study still relevant.

Download or read book Essays on Information Asymmetry in the U S Residential Mortgage Market written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on information asymmetry in the United States residential mortgage market written by Menglin Cao and published by . This book was released on 2005 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays in Homeownership and Mortgage Finance written by Nirupama Kulkarni and published by . This book was released on 2016 with total page 149 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two chapters on mortgage finance and homeownership. Federal policy often institutes uniform pricing across regions in the name of fairness. I study the unintended consequences of such uniform pricing in the context of the residential mortgage market, which is heavily influenced by the securitization policies of the government sponsored enterprises (GSEs). I show that the regional uniformity of GSE-conforming mortgage rates leads to credit rationing. I develop three results by exploiting differences in the strength of lender rights -- state laws that limit a lender's recourse and ability to foreclose on property -- as a source of regional variation. First, controlling for borrower characteristics, I find that GSE-securitized mortgage rates do not vary across lender rights whereas those of privately securitized mortgages do vary. Second, the lack of regional variation in mortgage rates leads to the credit rationing of marginal borrowers in regions with borrower-friendly laws, whereas, regression discontinuity and bunching estimates show that the GSEs "cherry-pick" the better risks leading to greater credit access in lender-friendly areas. Finally, I find that the GSEs' cost of funds advantage distorts the pool of borrowers available to the private market and that only some of the GSE-rationed borrowers can access privately securitized mortgages. Overall, the results demonstrate how uniform regional pricing and cost of funds advantages of the GSEs distorts the competitive landscape of the US mortgage market. The second chapter studies the impact of homeownership on intergenerational mobility. The benefits of homeownership feature prominently in the academic and policy discussions alike. Increasing homeownership has been a major policy goal for decades, especially in low-income areas. We show that the positive relationship between homeownership and intergenerational mobility is highly place-dependent. First, we link commuting zone-level homeownership rates to intergenerational mobility, and find a strong positive relationship. The relationship persists after instrumenting for ownership using housing supply and price shocks. Second, we show that the positive relation between of homeownership and upward mobility is significantly diminished or disappears in areas with high sprawl or segregation, whether we use income segregation, racial segregation, or a new measure of homeowner segregation. These results, as well as additional findings on the formation of social capital and on school quality, suggest that homeownership may not benefit, or may even disadvantage children in segregated, poor areas, possibly through reduced residential mobility.

Download or read book Essays in Real Estate Finance written by Taylor D. Nadauld and published by . This book was released on 2009 with total page 131 pages. Available in PDF, EPUB and Kindle. Book excerpt: Abstract: The first essay in the dissertation analyzes the structure and attributes of subprime mortgage-backed securitization deals originated between 1997 and 2007. Our data set allows us to link loan-level data for over 6.7 million subprime loans to the securitization deals into which the loans were sold. We show that the securitization process, including the assignment of credit ratings, provided incentives for securitizing banks to purchase loans of poor credit quality in areas with high rates of house price appreciation. Increased demand from the secondary mortgage market for these types of loans appears to have facilitated easier credit in the primary mortgage market. To test this hypothesis, we identify an event which represents an external shock to the relative demand for subprime mortgages in the secondary market. We show that following the SEC's adoption of rules reducing capital requirements on certain broker dealers in 2004, five large deal underwriters disproportionately increased their purchasing activity relative to competing underwriters in ZIP codes with the highest realized rates of house price appreciation but lower average credit quality. We show that these loans subsequently defaulted at marginally higher rates. Finally, using the event as an instrument, we demonstrate a causal link between the demand for mortgages in the secondary mortgage market and the supply of subprime credit in the primary mortgage market. The second dissertation essay examines the corporate governance of international real estate firms. With the passage of real estate investment trust (REIT) legislation in numerous countries around the world, more public and private real estate firms can choose between organizing themselves as a REIT, or a real estate operating company (REOC). REITs pay virtually all net income to shareholders in the form of dividends and are regulated in their investment policy, leverage, ownership, and operations to varying degrees. This paper considers the possibility that controlling shareholders of public real estate firms adopt REIT status as a credible commitment to increased levels of investor protection. Theory predicts that REITs are valued at a premium to otherwise similar REOCs, which I test using a sample of publicly traded real estate firms from 16 countries around the world. Surprisingly, I find that REITs are valued at a discount to REOCs. I briefly explore possible explanations for the result. Finally, I provide limited evidence consistent with an alternative hypothesis, which proposes that managers may be less likely to adopt REIT status if they have more valuable properties under management and a high level of inside ownership.

Download or read book Three Essays on the Mortgage Market written by Munpyung O and published by . This book was released on 2010 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: The first paper reviews the existing theoretical work on the option-theoretic mortgage valuation. The mortgage market has become an increasingly important segment of the financial market. There are two strands in the mortgage valuation literature; reduced-form (econometric) and structural-form (option-theoretic) valuation model. The option theoretic model provides clear endogenous explanations as to why the mortgage termination occurs. This approach shows that the mortgage value is determined by the interaction between the contractual features of mortgages and the uncertain future economic environment.

Download or read book Essays in Mortgage Funding and Risk Management written by Aya Bellicha and published by . This book was released on 2016 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three chapters on mortgage funding and risk management. The U.S mortgage market is very concentrated. In 2006, the top 40 lenders were responsible for the origination of 96 percent of all mortgages (Stanton et al. (2014)). These large lenders originated about 60 percent of the mortgages through the wholesale channel, delegating parts of the origination process to third party agents such as mortgage brokers and correspondent lenders. I show that the type of agent selected by the wholesale lender could crowd out local banks, who often act as correspondents and rely on these wholesale lenders for funding. I also show that this crowding out has spillover eects. As local banks decreased their presence in the county, they have also reduced other types of lending. As a result, their local communities showed less growth in small businesses. The second chapter discusses the perils of warehouse lending. Warehouse lending is an important part of the U.S. mortgage market because a large fraction of mortgage origination, both pre-crisis and currently, is carried out by non-depositories who are reliant on warehouse facilities to fund their mortgage origination activity. After the passage of The Bankruptcy Abuse Prevention Act (BAPCPA), in April 2005, most warehouse facilities were structured as Master Repurchase Agreements (MRAs). BAPCPA re-dened the mortgage loans held as collateral on the warehouse lines (the newly originated mortgages) as repo thus exempting them from automatic stay upon the bankruptcy of the mortgage originator (the repo seller). We consider the eect of the growth of MRAs for funding mortgage originations on the performance of the mortgage originators (repo sellers) and warehouse lenders (repo buyers). We nd that mortgage originators (repo sellers), that used MRAs to fund their loans, originated mortgages of lower quality and that these originators were more likely to declare bankruptcy. Symmetrically, we nd that the warehouse lenders (repo buyers) experienced a sharper increase in mortgage charge-os and non-performing mortgages than non-warehouse lenders, even though the quality of the retail and wholesale mortgages that they originated were comparable to the quality of mortgages originated by non warehouse lenders. This negative outcome for warehouse lenders arose from the exemption of the mortgage repo collateral from automatic stay, since under BAPCPA the poor quality assets of bankrupt counter parties, the mortgage originators, became consolidated on the warehouse lender balance sheets. Thus, the consolidated loans from the bankrupt counter parties generated an important component of the deterioration in the warehouse lenders' mortgage In the third chapter, we propose an empirical duration measure for the stock of U.S. Agency MBS that appears to be less prone to model risk than measures such as the Barclays Eective Duration measure. We nd that this measure does not appear to have a strong eect on the 12-month excess returns of ten-year Treasuries as would be expected if shocks to MBS duration lead to commensurate shocks to the quantity of interest rate risk borne by professional bond investors (see, Hanson, 2014; Malkhozov et al., 2016). Given this negative reduced form result, we then explore the mortgage and treasury hedging activities of the primary MBS investors such as commercial banks, insurance companies, the agencies, the Federal Reserve Bank, Mutual Funds, and foreign investors. We nd that the only investors that may follow the models of Hanson (2014) and Malkhozov et al. (2016) are foreign investors in Switzerland and the United Kingdom and life insurance rms. Life insurance rm market share has declined over the period, dropping below 10% since 1996 and reaching 4% in 2016. Furthermore, Switzerland and the United Kingdom are not major participants in the US Treasury market. Of the investors we are not able to study, hedge funds and pensions/retirement funds are the two investor groups that may trade along the Hanson (2014) and Malkhozov et al. (2016) models. However, although these two investor groups held almost 25% of the Agency MBS market (including households and non prot organizations) in the late 1990s, post crisis their share has fallen below 10%.

Download or read book Three Essays on the Housing and Mortgage Markets written by and published by . This book was released on 2015 with total page 180 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the U S Housing Market and the Credit Market written by Chuanlei Sun and published by . This book was released on 2012 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Evolution of Housing and Mortgage Markets written by Xiaoming Li and published by . This book was released on 2011 with total page 226 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Mortgage Risk written by Alan J. Neale and published by . This book was released on 2012 with total page 99 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation contributes three essays in areas of mortgage risk that are rapidly growing in importance. The first essay develops a fully dynamic optimization model for a borrower's redefault decision on a modified mortgage incorporating real-world frictions relevant for default decisions. Solutions to the model reveal large differences across modification structures and a basic pecking order for redefault performance controlling for resulting mortgage present value. Further, empirical tests utilizing unique and extensive data on modified loans offer broad agreement with the predictions of the model. The second essay provides one of the most complete studies for termination behavior of non-U.S. mortgages to date, jointly estimating the competing risks of prepayment and default in a grouped duration mixed proportional hazard framework applied to Singapore mortgages. The study tests option-theoretic motivations for prepayments and defaults as well as "trigger event" explanations, explores comparative results to U.S. mortgage studies, examines unique institutional characteristics of this market impacting option-theoretic motivations for loan termination, and documents that variation in sources of borrower equity matter for the exercise of default options. The final essay argues that the estimation of tail credit risk in residential mortgage portfolios remains relatively poorly understood, and that many common approaches to the problem have been incomplete or inadequate. In addition to laying out the fundamental components of sound portfolio credit risk assessment, the essay develops competing models for realistic dynamics of underlying risk factors, such as home prices. Particular attention is paid to identifying the properties of these models most consequential for the estimated distribution of losses, and to measures of implied sensitivity to geographic diversification.

Download or read book Essays on Mortgage Finance and Housing Markets written by Gonzalo Eduardo Maturana and published by . This book was released on 2015 with total page 348 pages. Available in PDF, EPUB and Kindle. Book excerpt: I first study the effects of additional loan modifications on loan losses during the recent financial crisis. Despite loan modification being widely discussed as an alternative to foreclosure, little research has focused on quantifying its effect on loan performance. By exploiting plausible exogenous variation in the incentives to modify securitized non-agency loans, I find that an additional modification reduces loan losses by 34.5% relative to the average loss. Consistent with theory, modifications are especially beneficial when borrowers are less likely to return to a current status without help and when foreclosure losses are higher. Modification types that grant greater concessions to borrowers are the most effective for minimizing losses. Overall, additional modifications prevent borrower foreclosure while simultaneously benefiting investors. I then study the relation between originators that misreported mortgages and house price movements. ZIP codes with high concentrations of misreporting originators experienced a 75% larger relative increase in house prices from 2003 to 2006 and a 90% larger relative decrease from 2007 to 2012 compared to other ZIPs. Six causality related tests suggest that high fractions of bad originators in a ZIP result in larger price swings. In areas of elastic land supply, ZIPs with bad originators are associated with a building boom and a subsequent price bust that is much more severe than in similar ZIPs without bad originators. Originators with high misreporting seemed to have both given credit to borrowers of a higher stated risk and further understated the borrowers' true risk. Overall, the findings suggest that there are settings where questionable business practices can lead to large distortionary effects.

Download or read book Housing Markets and the Economy written by Karl E. Case and published by Lincoln Inst of Land Policy. This book was released on 2009 with total page 417 pages. Available in PDF, EPUB and Kindle. Book excerpt: Based on the work of Karl "Chip" Case, who is renowned for his scientific contributions to the economics of housing and public policy, this is a must read during a time of restructuring our nation's system of housing finance.

Download or read book The American Mortgage System written by Susan M. Wachter and published by City in the Twenty-First Centu. This book was released on 2014-12-04 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: Leading economists and other housing market researchers examine key elements of the mortgage meltdown in this volume of original essays. More than a critique in hindsight, this volume offers pragmatic solutions to the problems facing American home ownership.

Download or read book Essays in Real Estate Finance written by Sheharyar Javaid Bokhari and published by . This book was released on 2012 with total page 154 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is a collection of three essays in real estate finance. In the first essay, we observe that between 1985 and 2007, the share of household mortgage debt as a proportion of the total value of housing in the US increased substantially from 30% to an all-time high of 50%. With the decline in house prices, these high levels of leverage increased the propensity at which households defaulted. We examine household decisions on mortgage leverage using new extensive loan-level data from Fannie Mae over the sample period 1986 to 2010. We conceptualize a market for leverage per se and develop a theory of leverage demand-and-supply. Empirically, we estimate an interest rate elasticity of leverage demand of -0.37 or, equivalently, a movement along the demand curve from an r-LTV pair of (10%, 72%) to that of (5%, 85%). We find that leverage demand was cyclical and responsive to economic events but without a general trend. By contrast, leverage supply shifts in the form of lower mortgage interest rates were concurrently associated with higher average loan-to-value ratios. We find that in MSAs with higher house prices, households borrowed more and bought equally more expensive houses. That left leverage unchanged but raised households' risk of illiquidity by increasing their loan-to-income ratios. In MSAs with high house price volatility, we find that both leverage demand and supply were lower. We also identify that younger, poorer and less credit-worthy borrowers demand more leverage than their counterparts. In the second essay, co-authored with David Geltner, we document that loss aversion behavior plays a major role in the pricing of commercial properties, and it varies both across the type of market participants and across the cycle. We find that sophisticated and more experienced investors are at least as loss averse as their counterparts and that loss aversion operated most strongly during the cycle peak in 2007. We also document a possible anchoring effect of the asking price in influencing buyer valuation and subsequent transaction price. We demonstrate the importance of behavioral phenomena in constructing hedonic price indices, and we find that the impact of loss aversion is attenuated at the aggregate market level. This suggests that the pricing and volume cycle during 2001 - 2009 was little affected by loss aversion. In the third essay, also co-authored with David Geltner, we present a technique to address the problem of data scarcity in the construction of high-frequency real estate price indexes. We introduce a two-stage frequency conversion procedure, by first estimating lower-frequency indexes staggered in time, and then applying a generalized inverse estimator to convert from lower to higher frequency return series. The two-stage procedure can improve the accuracy of high-frequency indexes in scarce data environments. The method is demonstrated and analyzed by application to empirical commercial property repeat-sales data.

Download or read book Three Essays on Household Finance written by Alexander Calen Aberlin Kaufman and published by . This book was released on 2010 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation presents three essays on household finance. All three focus on contemporary U.S. consumer credit markets, with particular attention paid to how market organization and firm incentives mediate the way firms interact with customers and the types of contracts they offer. The first essay examines the question of whether securitization was responsible for poor underwriting standards during the recent mortgage crisis. The second essay attempts to quantify the effect of Fannie Mae and Freddie Mac's intervention in the conforming mortgage market on equilibrium outcomes such as price and contract structure. The third essay investigates how mutual ownership of a firm by its customers can limit that firm's incentive to offer contracts meant to take advantage of customers' behavioral biases.

Download or read book Essays in Housing Markets and Financial Fragility written by Deeksha Gupta and published by . This book was released on 2018 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation is motivated by the housing crisis of 2008. It consists of three chapters. In the first chapter, "Too Much Skin-in-the-Game? The Effect of Mortgage Market Concentration on Credit and House Prices," I propose a new theory to help explain the housing crisis. During the housing boom, a small number of institutions--the government-sponsored enterprises (GSEs) and a few banks--held most of U.S. mortgage risk. I develop a theory in which such concentration of mortgage exposure can explain features of the housing crisis. I show that large lenders with many outstanding mortgages have incentives to extend risky credit to prop up house prices. An increase in concentration can lead to a boom with worsening credit quality and a subsequent bust with widespread defaults. In the second chapter, "Concentration and Lending in Mortgage Markets," joint with Ronel Elul and David Musto, we attempt to test the theory described in the first chapter. We provide evidence that concentration in mortgage markets can create perverse lending incentives. We exploit variation in the size of the GSEs' outstanding mortgage exposure across MSAs. Using a loan-level dataset, we provide evidence that the GSEs were more likely to engage in high-risk activities in areas where they had a large exposure to outstanding mortgages. We also provide evidence that this relationship is driven by an incentive to keep house prices high. In the final chapter, "Housing Booms and the Crowding-Out Effect," joint with Itay Goldstein, we study the effect that investment in real estate assets has on the economy. We develop a theory in which housing price booms can sometimes lead to a crowding-out of corporate investment. We show that an increase in real estate prices does not necessarily increase aggregate investment even when firms actively use real estate assets as collateral to borrow against and invest the proceeds in positive NPV projects. We argue that at times, it can be optimal to decrease the price of housing rather than to support high housing prices to stimulate the economy and characterize when this is the case.