Outstanding Mortgage Research Articles

Profile of men and women sentenced to community services: Risk factors and social vulnerability

This study explores profiles of individuals in community service, focussing on gender differences and women’s social vulnerability. Surveys from 503 participants undergoing community service via the Spanish Red Cross unveiled significant gender-related distinctions. Women faced more family responsibilities and lower incomes than men, with heightened economic challenges and engagement in informal work. Property ownership was less frequent among women, who also grappled with more outstanding mortgage payments and single parenthood. A larger share of women relied on institutional support and joined the Extreme Vulnerability Programme. These findings resonate with global research advocating holistic intervention for women offenders. However, this demands a broader array of community service tailored to women’s needs, especially concerning dependent children. Addressing core necessities such as housing, healthcare, and employment, along with enhancing self-worth and recognition, proves pivotal in deterring women from criminal behaviour. A gender-oriented approach to alternative sentencing can enhance effectiveness and compliance.

Inframarginal Borrowers and the Mortgage Payment Channel of Monetary Policy

Despite the widespread use of fixed-rate mortgages in the United States, I show that monetary policy is effectively passed through to aggregate outstanding mortgage debt service. Using credit bureau, lender, and servicer data on mortgage payments and originations and exogenous monetary policy shocks, I estimate a mortgage rate semi-elasticity of payments over 10. Inframarginal borrowers---households whose choice to buy a home or refinance does not depend on the particular monetary policy decision under consideration---are the most important conduit, explaining over half of the pass-through. Consistently large flows of inframarginal borrowing relative to the stock of outstanding debt account for the strength of this channel. Households with adjustable-rate mortgages and marginal refinancers, the focus of much of the literature on monetary policy's effect on mortgage borrowers, each explain about 20 percent of the pass-through. I show the mortgage payment channel induces a lag in the operation of policy, as the cumulative effects on debt service build over time in response to persistent shocks to longer-term rates. Estimated magnitudes suggest that mortgage payments are a primary channel by which monetary policy affects consumption.

Borrowing and Spending in the Money: Debt Substitution and the Cash-out Refinance Channel of Monetary Policy

We show that the strong negative effect of higher mortgage rates on cash-out refinancing reflects substitution into other borrowing products, not large changes in total new household borrowing. We exploit an exogenous increase in long-term rates to show that, in the cross-section of outstanding mortgage rates, changes in cash-out and alternative borrowing are offsetting. Additionally, we instrument using monetary policy surprises to show that, over the period from 2006-2021, changes in cash-out refinancing are offset by alternative borrowing. Our results suggest that debt substitution substantially weakens the cash-out refinance channel of monetary policy and reduces its path-dependence.

The riskiness of outstanding mortgages in the United States, 1999–2019

AbstractThis article introduces measures of credit risk for all outstanding mortgages in the United States between 1999 and 2019. Terminations play a fundamental role in offsetting risk introduced by new originations because of refinance activity and the often dual nature of home buyers as concurrent sellers. To illustrate these concepts in a policy setting, I show that the Home Affordable Refinance Program increased origination risk metrics but reduced overall risk due to associated terminations of even riskier loans. In addition to these flow dynamics, amortization, loan age, collateral appreciation, and prior selection drive changes to portfolio‐level risk.

Housing wealth, mortgages and Australians’ labour force participation in later life

In the life cycle model of consumption and saving, homeownership is an important vehicle for horizontal redistribution. Households accumulate wealth in owner-occupied housing during working lives before benefiting from imputed rent streams in retirement. But in some countries housing wealth’s welfare role has broadened as owners increasingly use flexible mortgages to smooth consumption during working lives. One consequence is higher outstanding mortgages later in life, a burden exacerbated by high real house prices that compel home buyers to demand mortgages that are a growing multiple of their incomes. We investigate whether these developments are prompting longer working lives, an idea that is especially relevant in countries offering relatively low government pensions. Australia is one such country. We use the 2001–2017 panels of the Household, Income and Labour Dynamics in Australia Survey to estimate hazard models of exits from the Australian labour force as workers approach pensionable age. We find that those with high outstanding mortgage debts are more likely to postpone retirement, as are those with relatively low amounts of private pension wealth. These results are stronger in urban housing markets, and especially among males.

Rising housing costs and income poverty among the elderly in Germany

Housing costs have been increasing rapidly in Germany in recent years. Given the importance of housing for the elderly, one may expect many to be forced to dedicate ever-larger shares of their income to housing costs. Using longitudinal data from the German Socio-Economic Panel (GSOEP), we examine how changes in housing costs between 1996 and 2017 have affected income poverty among Germany’s over-65s. Our results reveal that higher costs have indeed contributed to increased income poverty in old age in that period. Our pooled probit regression models as applied to Germany’s elderly show that increased housing costs mean tenants, homeowners with outstanding mortgages, single-person households and people with migration background all suffer a higher risk of poverty, while the risk remains lower for outright homeowners. Since the relative income position of the elderly is expected to further deteriorate in future, our study suggests a need for policy action to avoid a worsening in figures for old-age income poverty in Germany.

Too Much Skin-in-the-Game? The Effect of Mortgage Market Concentration on Credit and House Prices

Abstract In 2007, as American housing markets started to decline, the government-sponsored enterprises dramatically increased their acquisitions of low FICO and high loan-to-value mortgages. By 2008, the agencies had reversed course by decreasing their high-risk acquisitions. I develop a theory in which large lenders temporarily increase high-risk activity at the end of a boom. In the model, lenders with many outstanding mortgages have incentives to extend risky credit to prop up house prices. The increase in house prices lessens the losses they make on their outstanding portfolio of mortgages. As the bust continues, lenders slowly wind down their mortgage exposure.

Household Debt Overhang Did Hardly Cause a Larger Spending Fall During the Financial Crisis in Australia

The “debt-overhang hypothesis” – that households cut back more on their spending in a crisis when they have higher levels of outstanding mortgage debt (Dynan, 2012) – seems to be taken for granted by macroprudential authorities in several countries in their policy decisions, as well as by the international organizations that evaluate and comment on countries’ macroprudential policy. Results are presented for UK microdata that reject the debt-overhang hypothesis. The results instead support the “spending-normalization hypothesis” of Andersen, Duus, and Jensen (2016a), what can also be called the “debt-financed overspending” hypothesis – that the correlation between high pre-crisis household indebtedness and subsequent spending cuts during the crisis reflects high debt-financed spending pre-crisis and a return to normal spending during the crisis. As discussed in Svensson (2019, 2020), this is consistent with the correlation reflecting debt-financed overspending through what Muellbauer (2012) calls the “housing-collateral household demand” and Mian and Sufi (2018) the “debt-driven household demand” channel. The correlation is thus spurious and an example of omitted-variable bias. A simple model shows that consumption and debt changes are directly and strongly positively correlated, whereas consumption and debt levels are quite weakly negatively correlated. Importantly, and in contrast, examples show that there is no systematic relation between consumption cuts and levels of or changes in LTV ratios. The lack of a robust relation between consumption cuts and levels of or changes in LTV ratios implies that tests of these hypotheses should generally not be done by regressions of consumption cuts on levels of or changes in LTV ratios. Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

АНАЛИЗ РЕГИОНАЛЬНОЙ СТРУКТУРЫ РЕЕСТРОВ ИПОТЕЧНОГО ПОКРЫТИЯ ОБЛИГАЦИЙ С ПОРУЧИТЕЛЬСТВОМ ИПОТЕЧНОГО АГЕНТСТВА ДОМ.РФ

In the article we consider the regional structure of aggregated mortgage collateral pools of MBS issues covered by the guarantee of the mortgage agency DOM.RF. We analyze the regional structure of outstanding mortgage loan balance in collateral pools and select the regions that represent the bulk of the collateral portfolio. We consider the link between socio-economic and pool characteristics. We find the links, which pass the test for significance. We find the possible presence of the burnout effect.

QUANTITATIVE ANALYSIS OF THE BEHAVIOR OF NATIONAL MEXICAN REAL ESTATE PRICES

OBJECTIVE: To explain Mexican home prices using fundamental, macroeconomic variables in order to identify possible financial bubble tendencies within the Mexican national housing market during the period 2005 to 2018.
 
 MATERIAL AND METHOD: The present study analyzes quarterly data of Mexican real estate market prices and various fundamental, macroeconomic variables during the period 2005 to 2018. The quantitative research approach of the study is based on descriptive statistics and regression analyses.
 
 RESULTS: The main results of the study are as follows: First, a simple comparison between market prices and fundamental values shows some kind of (preliminary) evidence of bubble tendencies on the Mexican national real estate market. Secondly, a more sophisticated regression analysis concludes that especially the fundamental variables outstanding mortgage volume and unemployment rate can explain real estate market price movements almost perfectly.
 
 CONCLUSIONS: The hypothesis of a financial bubble within the national Mexican real estate market is then rejected, in the considered period 2005 to 2018.

Mortgage Prepayment, Race, and Monetary Policy

This paper documents large differences in mortgage prepayment behavior across racial and ethnic groups in the United States, which have significant implications for monetary policy, inequality, and pricing. Using a novel data set that combines administrative data on mortgage performance with information on race and ethnicity, we show that Black and Hispanic white borrowers have significantly lower prepayment rates compared with Non-Hispanic white borrowers, holding income, credit score, and equity constant. This gap is on the order of 50 percent and largely reflects different sensitivities to movements in market interest rates, and was particularly pronounced during QE1. Differences in prepayment speeds result in large disparities between white and minority borrowers in the distribution of rates paid on outstanding mortgages, which widens during periods of low mortgage rates and high refinance volumes. From 2010 to 2014, Black borrowers were paying 30 to 45 basis points more on average than Non-Hispanic whites despite only a small gap of about 5 basis points between the groups at the time of mortgage origination. The large differences in prepayment behavior have important pricing implications, as they suggest that minority borrowers are overpaying for their prepayment option. Our results show that inequality in mortgage markets is larger than previously realized and is exacerbated by expansionary monetary policy.

Too Much Skin-in-the-Game?: The Effect of Mortgage Market Concentration on Credit and House Prices

In 2007, as American housing markets started to decline, the government-sponsored enterprises dramatically increased their acquisitions of low FICO and high loan-to-value mortgages. By 2008, the agencies had reversed course by decreasing their high-risk acquisitions. I develop a theory in which large lenders temporarily increase high-risk activity at the end of a boom. In the model, lenders with many outstanding mortgages have incentives to extend risky credit to prop up house prices. The increase in house prices lessens the losses they make on their outstanding portfolio of mortgages. As the bust continues, lenders slowly wind down their mortgage exposure.

The Impact of Interest-Only Loans on Affordability

We study the 2000s Danish legalization of interest-only (IO) loans, a mortgage market innovation aimed at increasing affordability and homeownership rates for cash-strapped buyers by substantially reducing first-year payments. Our results show that IO mortgages rapidly became popular with both the targeted cash-strapped borrowers and mortgage applicants spanning the wealth and income distributions. Just three years after policy implementation, IO mortgages constituted half of all outstanding Danish mortgages. The introduction of IO loans thus led to an increase in housing turnover and transactions. However, as these increases were dispersed across the distribution of homeowners, they did not lead to any changes in homeownership rates for the targeted group or allow any underserved buyer groups to enter the market. Instead, the IO reform coincided with an increase in house prices. Broadly, our policy analysis documents how reforms targeting housing affordability and inequality can be exploited by the wider population, limiting intended effects.

Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market

ABSTRACTWe provide evidence that lenders differ in their ex post incentives to internalize price‐default externalities associated with the liquidation of collateralized debt. Using the mortgage market as a laboratory, we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and thus are less inclined to foreclose. We provide evidence consistent with our conjecture. Arguably as a consequence, zip codes with a higher concentration of outstanding mortgages experience smaller house prices declines. These results are not driven by unobservable zip code or lender characteristics.

Housing Collateral and Entrepreneurship

ABSTRACTWe show that collateral constraints restrict firm entry and postentry growth, using French administrative data and cross‐sectional variation in local house‐price appreciation as shocks to collateral values. We control for local demand shocks by comparing treated homeowners to controls in the same region that do not experience collateral shocks: renters and homeowners with an outstanding mortgage, who (in France) cannot take out a second mortgage. In both comparisons, an increase in collateral value leads to a higher probability of becoming an entrepreneur. Conditional on entry, treated entrepreneurs use more debt, start larger firms, and remain larger in the long run.

House prices, credit and the effect of monetary policy in Norway: evidence from structural VAR models

This paper investigates the responses of house prices and household credit to monetary policy shocks in Norway, using Bayesian structural VAR models. The analysis indicates that the effect of a monetary policy shock on house prices is large, while the effect on household credit is muted. This is consistent with a relatively small refinancing rate (refinancing rate refers to the share of outstanding mortgages that are refinanced each period due to changes in, for example, house prices or interest rate) of the mortgage stock each quarter. Using monetary policy to guard against financial instability by mitigating property-price movements may prove effective, but trying to mitigate household credit may prove costly in terms of GDP and inflation variation.

Housing, health and wellbeing of older persons in China and India

Background This paper presents an analysis of the wellbeing of older persons in China and India, with a focus on the linkages between different features of housing and life satisfaction and self-rated health as elements of wellbeing. The motivation of the paper is drawn from the fact that housing is a critical aspect of living conditions in later life. Older persons experience decreasing functional capacities and require greater support in their times of rising frailty and vulnerability. Additionally, a large majority of Indian and Chinese older persons live in their own homes, without the obligation of an outstanding mortgage, and they are more likely to have emotional, subjective attachment with their homes than younger persons. Housing conditions can contribute to wellbeing both as a stressor and as an enabling factor. Therefore, one of the aims of this study is to assess in what way, positive or negative, housing conditions influence wellbeing of older persons in the context of India and China, two most populous countries in the world with the fastest ageing populations in the world. In 2015, persons aged 60 and over living in those two countries constitute 36% of worldwide population of 60+ and this share will grow to 39% in 2030. This paper also examines whether housing influenced one or both commonly used measures of older people’s wellbeing, namely life satisfaction and self-rated health. We also examine which housing features have the highest influence on subjective wellbeing. Method This paper uses micro data derived from the first wave of the WHO Study on Global AGEing and Adult Health ‘SAGE’ carried out in India and China during 2007. For the assessment of housing conditions, the paper constructs a composite index of housing quality (QoH) drawing from data on a number of housing attributes available in the SAGE survey. The relationship between housing conditions and wellbeing indicators is then examined using multivariate modelling methods (viz. ordered probit regression). The use of interaction terms allowed highlighting the differential impact of varying housing attributes for persons. Results and discussion Housing conditions vary significantly between the two countries analysed. Older population in China experienced much better conditions than those observed for India. The key findings confirmed the importance of housing conditions for the subjective wellbeing indicators of older persons. However, surprisingly, this relationship is stronger in the case of the life satisfaction measure, and rather limited for the self-rated health measure, leading to conclusion that housing features do not have influence on all aspects of wellbeing. Additionally, notable differences are found in these relationships between India and China, which implies that perception of housing and its importance may be dependent on other external public services as well as on the context of culture and environment.

ACCESS TO MORTGAGE CREDIT AND HOUSING PRICE DYNAMICS

In real estate studies, arguably the most important topic revolves around what actually affect the price of properties. In addition to various macroeconomic factors, the mortgage industry is also believed to play a major role. Nonetheless, despite its profound implications on the banking sector, the property market, and the economy as a whole, there is no consensus as to the relationship between property price and bank mortgage lending. In light of this, this paper aims to investigate the relationship between property price and mortgage lending, along with other macroeconomic variables, in two housing sub-markets of Hong Kong (i.e. the mass housing market and the luxury housing market). The findings illustrate that one-way directional relationships are discovered 1) from mass housing price to mortgage lending; 2) from luxury housing price to mortgage lending; and 3) from mass housing price to luxury housing price. Macroeconomic factors such as GDP, inflation rate, and interest rate are also found to play a major role in influencing the prices of both property markets and the amount of outstanding mortgage loans. Implications based upon these findings are also discussed.

Home Ownership and Household Portfolio Choice

We study the effect of home equity and indebtedness on financial portfolio choices of Dutch households during the period 2006-2012. Using a large administrative dataset at the household level we estimate how home equity and the outstanding mortgage amount influence the share of liquid assets held in stocks. We apply different econometric methods to take selection and endogeneity into account. In our preferred specifications both home equity and the household’s amount of mortgage debt have a non-significant impact on the risky asset share.

Measuring Total Mortgage Market Credit Risk

This paper proposes two measures of credit risk for the population of outstanding mortgages. The first uses an average ex ante default probability to characterize risk, the second uses the unexpected loss generated by the asymptotic single factor risk (ASFR) model, a probabilistic model of portfolio risk. Both approaches show that average market–wide expected default rate and the unexpected loss per dollar of outstanding mortgage balances were roughly constant during the 2002-2006 boom in US house prices.