How House Price Dynamics and Credit Constraints Affect the Equity Extraction of Senior Homeowners PDF Download
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Languages : en
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Languages : en
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Author: Stephanie Moulton
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Languages : en
Pages : 35
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Households borrow against home equity through different types of mortgages: closed end home equity loans or revolving lines of credit, cash-out refinancing, and--for senior homeowners--reverse mortgages. The objective of this study is to identify how borrowing constraints and the lending environment affect the rate of seniors' home equity borrowing and their choice of mortgage product. Ours is the first study to model the choice of reverse mortgages alongside other modes of equity borrowing. During the house price boom (2001-2007), we find that credit constrained areas display higher rates of home equity borrowing than less constrained areas as home equity levels increase for cash-out refinancing and reverse mortgages. During the recovery period (2010-2015), we observe this relationship only for reverse mortgage borrowing, consistent with tightened underwriting for forward mortgage loans.
Author: Stephanie Moulton
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Languages : en
Pages : 0
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This paper examines how the extraction of home equity, including but not limited to equity extracted through reverse mortgages, affects credit outcomes of senior households. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with our unique credit panel dataset of reverse mortgage borrowers. We track credit outcomes for seniors who extracted equity through cash-out refinancing, home equity lines of credit or home equity loans between 2008 and 2011, and a random sample of nonextractors. We estimate differences-in-differences by extraction channel using individual, fixed-effects panel regression. We find that seniors extracting equity through reverse mortgages have greater reductions in consumer debt, and are less likely to become delinquent or foreclose three years post origination relative to other extractors and nonextractors. These effects are greater among households who experienced a credit shock within the two years prior to loan origination. To help isolate the effect of the extraction channel on credit outcomes, we re-estimate our models with a matched sample of consumers at the time of extraction. We find that otherwise similar HECM borrowers have larger reductions in credit card debt post-extraction than other equity borrowers and non-borrowers, with no significant difference in the rates of delinquency on non-housing debt post extraction. For HECM borrowers, we find that increased initial withdrawal and increased monthly cash flow contribute to the reduction in credit card debt.
Author: François Ortalo-Magné
Publisher:
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Category : Credit
Languages : en
Pages : 60
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Author: Thomas Sowell
Publisher: Basic Books (AZ)
ISBN: 0465018807
Category : Business & Economics
Languages : en
Pages : 194
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Explains how we got into the current economic disaster that developed out of the economics and politics of the housing boom and bust. The "creative" financing of home mortgages and "creative" marketing of financial securities based on these mortgages to countries around the world, are part of the story of how a financial house of cards was built up--and then collapsed.
Author: Neil Bhutta
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Category : Home equity loans
Languages : en
Pages : 54
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Monetary policy is perhaps the most important tool the government has to quickly affect the trajectory of the economy. This paper estimates the impact of policy- driven short-term mortgage rates on home equity based borrowing. Using credit record panel data from 1999-2010, we show that the likelihood of equity extraction peaked in 2003 when mortgage rates hit historic lows, and estimate that a 100 basis point rate decline leads to a 25 percent rise in extraction. Exploiting geographic variation in house price fluctuations, we find this rate effect is half the magnitude of the house price effect. Additionally, differential responses by age and credit score provide new evidence of financial frictions. Finally, equity extraction increases default risk, most strikingly for those extracting in 2006 when both interest rates and house prices were peaking. Conditional on many factors including credit score, zip code house price changes and county fixed effects, those who extracted in 2006 were 90 percent more likely to become delinquent on a mortgage than non-extractors over the next four years.
Author: Marcus Mølbak Ingholt
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Languages : en
Pages :
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More than a decade has now passed since rapidly declining house prices triggered a global financial crisis that developed into a global recession, the speed and depth of which were unprecedented in recent history. The overarching objective of this Ph.D. thesis is to improve our understanding of how simple price adjustments in the housing market could cause havoc to the functioning of the global economy to such an extent. At first sight, it may not be obvious that housing markets matter greatly for aggregate economic activity. For instance, residential investments constitute a small share - 4.4 pct. in the United States (U.S.) and 5.4 pct. in Denmark - of the gross domestic product.1 However, real estate, in addition to providing housing services to families, serves as collateral on mortgage loans, home equity loans, and home equity lines of credit. A corollary of this servitude is that the supply of collateralized credit to homeowners expands and contracts roughly proportionally to the house price cycle. In consequence, house prices may act as impetuses that stimulate and depress economic activity (Kiyotaki and Moore, 1997; Iacoviello, 2005). This collateral channel - in conjunction with other mechanisms linking house prices, credit, and real activity - constitute the theoretical foundation of the thesis. The thesis consists of three self-contained chapters, in addition to this introduction. All chapters focus on the U.S. economy, but have implications that reach well beyond this scope.
Author: United States. Department of Housing and Urban Development
Publisher:
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Category : Home equity loans
Languages : en
Pages : 240
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Author: John V. Duca
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Category :
Languages : en
Pages : 30
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Author: Tracey Nicole Seslen
Publisher:
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Category :
Languages : en
Pages : 104
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The first chapter attempts to shed light on the role of housing price dynamics in mobility decisions, asking whether households respond to prices in a forward- or backward-looking manner, and the extent to which high leverage constrains moving behavior. On a broader level, the study tests whether price dynamics dominate non-market shocks as a force governing household mobility, given the importance of housing as an investment good and saving device. Using a 13 year sample from the Panel Study of Income Dynamics, I find that households are largely backward-looking in both their mobility and consumption decisions, and that non-market shocks play a significant role. Households show little or no response to equity constraints, and do not appear to time the market, despite significant forecastability in housing prices. These conclusions lend support to the notion of prices leading trading volume, but do not support the theoretical work of Stein (1995), which attributes mobility behavior to changes in equity constraints brought about by changes in housing prices. The second chapter uses data from the Retirement History Survey to measure the impact of property tax abatement programs on elderly homeownership decisions. Analysis using a competing risks framework, in which the decision to trade down is treated separately from the decision to end homeownership completely, shows striking differences in the impact of property taxes on each type of failure: for the elderly who choose to trade down, property taxes have a positive effect on the hazard of moving. Alternatively, property taxes have little impact on the tenure decision. Incorporating individual heterogeneity to correct for sample bias, to capture mover-stayer effects, and to account for correlation between property taxes and omitted variables, has little effect on the results. From an "ex post" perspective, the results of the analysis lead to the conclusion that property tax abatement programs have a small impact at best, and may be leading to undesirable redistributional outcomes. The final chapter employs data from the neighborhood clusters sample of the 1989 American Housing Survey and the wealth supplement of the 1989 Panel Study of Income Dynamics to study to distribution of wealth within US residential neighborhoods. Calculations using the Bourguignon decomposable inequality index show that wealth is more unequally distributed than income, and income more than housing wealth, at all levels of aggregation--neighborhoods, metropolitan areas, census regions, and the entire US.
