COVID and Mortgages
Paper Session
Saturday, Jan. 8, 2022 12:15 PM - 2:15 PM (EST)
- Chair: Kris Gerardi, Federal Reserve Bank of Atlanta
How Do Institutional Investors React to Geographically Dispersed Information Shocks? A Test Using the COVID-19 Pandemic
Abstract
We test how institutional investors respond to geographically dispersed information shocks during periods of market turmoil. Specifically, using a sample of Real Estate Investment Trusts (REITs) that links the locations of investors, REIT firms, and the assets held by REITs, we find that institutional investors reduced their holdings in response to local information shocks in the early stage of the COVID-19 pandemic. Local ownership declined more in more heavily-affected property markets. In addition, the response to local information shocks was larger in markets with larger portfolio allocations by REITs and in markets that are home to the investors. The decline in local ownership was also more pronounced among motivated and non-passive investors. Our study sheds light on the effects of local information shocks on the formation of investors’ expectations during market crisis.Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance
Abstract
We study the role of mortgage servicers in implementing the CARES Act mortgage forbearance program during the COVID-19 pandemic. Despite universal eligibility, we document that a significant number of federally backed mortgage borrowers become delinquent during the pandemic without successfully entering into a forbearance program, and that the relative frequency of these "missing" forbearances varies significantly across mortgage servicers for otherwise identical loans. Forbearance outcomes are systematically related to servicer characteristics including size, liquidity and organizational form, consistent with the role of economic incentives in shaping servicer behavior. We also use servicer-level variation in forbearance outcomes to estimate the causal effect of forbearance on borrower outcomes. We find that assignment to a "high-forbearance" servicer translates to a significantly higher non-payment rate, and we find evidence that part of this additional household liquidity is used to pay down high-cost credit card debt.Bankruptcy and the COVID-19 Crisis
Abstract
We examine the impact of the COVID-19 economic crisis on business and consumer bankruptcies in the United States using real-time data on the universe of filings. Historically, bankruptcies have closely tracked the business cycle and contemporaneous unemployment rates. However, this relationship reversed during the COVID-19 crisis. While aggregate filing rates were very similar to 2019 levels prior to the onset of the pandemic, filings by consumers and small businesses dropped dramatically starting in mid-March of 2020, contrary to media reports and many experts’ expectations. Total bankruptcy filings declined by 31 percent between 2019 and 2020. Consumer and business Chapter 7 filings rebounded moderately starting in mid-April and stabilized around 25 percent below 2019 levels, while Chapter 13 filings stabilized around 55 percent below 2019 levels. We show that the decline in filings was especially concentrated among homeowners and that bankruptcy filings fell the most in areas with the largest declines in mortgage foreclosure rates, suggesting that loan forbearance is an important factor in the decline in bankruptcy. We also find evidence consistent with liquidity constraints preventing some debtors from filing during the pandemic.Discussant(s)
Jim Conklin
,
University of Georgia
McKay Price
,
Lehigh University
Meta Brown
,
Ohio State University
Wenli Li
,
Federal Reserve Bank of Philadelphia
JEL Classifications
- R3 - Real Estate Markets, Spatial Production Analysis, and Firm Location