Sunday, Jan. 7, 2018 10:15 AM - 12:15 PM
- Chair: Lynn Fisher, Mortgage Bankers Association
How Does Mortgage Debt Affect Household Consumption? Micro Evidence From China
AbstractThe 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
AbstractBorrowers 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
AbstractTo 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.
Mortgage Bankers Association
Federal Reserve Bank of Philadelphia
U.S. Office of Financial Research
- G2 - Financial Institutions and Services
- E4 - Money and Interest Rates