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.

  1. Home
  2. ASSA Annual Meeting
  3. 2025
  4. Program
  5. Household Finance
« Back to Results

Household Finance

Paper Session

Saturday, Jan. 4, 2025 10:15 AM - 12:15 PM (PST)

San Francisco Marriott Marquis, Nob Hill C
Hosted By: American Real Estate and Urban Economics Association
  • Chair: Tingyu Zhou, Florida State University

The Digital Revolution: Bridging the Information Gap in the Consumer Credit Market

Sumit Agarwal
,
National University of Singapore
Yonglin Wang
,
Lingnan University
Jian Zhang
,
University of Hong Kong

Abstract

We examine how the adoption of information communication technology helps resolve information friction in the consumer credit market. Using a staggered difference-in-differences approach that exploits the granular spatial diffusion of residential broadband access, we determine that broadband Internet availability is associated with a 10%–12% reduction in mortgage broker fees. Even when obtaining a loan through the same broker, borrowers with high-speed Internet access pay 3% to 4% less in broker fees than those without such access. Our results are robust to correcting for bias induced by the staggered nature of the shock and a battery of alternative specifications, including the instrumental variable (IV) approach. We investigate three potential mechanisms: greater bargaining power, reduced search costs, and automation and efficiency improvements. Our findings are consistent with the first two mechanisms and suggest that cost savings from increased efficiency are likely to be small. A back-of-the-envelope calculation suggests that combined savings from reduced broker fees for both prime and subprime mortgages amounted to $819 million in 2006. This study contributes to the growing body of literature exploring the role of technology in financial markets and has important implications for policymakers seeking transparency and competition in the mortgage market.

Home Improvement, Wealth Inequality, and the Energy-Efficiency Paradox

Yasmine van der Straten
,
University of Amsterdam
Martijn Droes
,
University of Amsterdam

Abstract

This article examines the rate at which different households become green and how this affects the distribution of both wealth and CO2 benefits. We find that lower-income households are less likely to make their homes more energy efficient. At the same time, higher-income households sort themselves into homes that are already more energy efficient to begin with. Over a 15-year horizon, the combined effect on energy savings accumulates to 17% of median net wealth, with ex ante sorting explaining 65% of this effect. Although a policy that encourages lower-income households to own energy-efficient homes potentially reduces wealth inequality and poverty, it leaves 83% of the potential CO2 benefits unrealized because the brownest households are in the upper part of the income distribution. Our results indicate that there is a policy trade-off between sheltering low-income households against climate risk on the one hand and effectively reducing CO2 emissions on the other.

Consumer Protection? Predatory Loan Laws and their Impact on Household Credit and Spending

Rajashri Chakrabarti
,
Federal Reserve Bank of New York
Donald Morgan
,
Federal Reserve Bank of New York
Lee Seltzer
,
Federal Reserve Bank of New York
Sarah Zebar
,
Federal Reserve Bank of New York

Abstract

Multiple states have capped consumer loan interest rates to protect households from high cost (“predatory”) lenders. Using a triple-difference analysis applied to five such states, we find no evidence that these usury laws benefit households. On the contrary, we find they constrain credit and spending by high risk and low-income households in affected states, with no corresponding improvement in credit health. The findings call into question whether households benefit from consumer usury limits.

Reverse Mortgages, Housing, and Consumption: An Equilibrium Approach

Jialu Shen
,
University of Missouri
Shize Li
,
Hong Kong University of Science and Technology
Ariel Sun
,
University of Missouri

Abstract

Reverse mortgages (RMs) enable eligible homeowners 62 years and older access to the liquidity of their home without them moving out or repaying before loan termination when the borrowers die or move to long-term care facilities. We incorporate RMs into a quantitative equilibrium life-cycle model to assess their impacts on household decisions, the mortgage and the housing market. We show that retired RM borrowers experience significantly enhanced consumption smoothing. Additionally, the presence of RMs in the mortgage market enhances the house's perceived value to households, making homeownership a more financially attractive option and stimulating housing demand. These effects increase overall household welfare in our model, highlighting the positive impact of RMs.

Discussant(s)
David Zhang
,
Rice University
Cameron LaPoint
,
Yale University
Yongqiang Chu
,
University of North Carolina-Charlotte
Rebecca Jorgensen
,
University of Pennsylvania
JEL Classifications
  • R0 - General