A central question surrounding the current subprime crisis is whether the securitization process reduced the incentives of financial intermediaries to carefully screen borrowers. We examine this issue empirically using data on securitized subprime mortgage loan contracts in the United States. We exploit a specific rule of thumb in the lending market to generate exogenous variation in the ease of securitization and compare the composition and performance of lenders' portfolios around the ad hoc threshold. Conditional on being securitized, the portfolio with greater ease of securitization defaults by around 10%–25% more than a similar risk profile group with a lesser ease of securitization. We conduct additional analyses to rule out differential selection by market participants around the threshold and lenders employing an optimal screening cutoff unrelated to securitization as alternative explanations. The results are confined to loans where intermediaries' screening effort may be relevant and soft information about borrowers determines their creditworthiness. Our findings suggest that existing securitization practices did adversely affect the screening incentives of subprime lenders.

We estimate price elasticities of housing supply for U.S. cities by examining the impact of foreign purchases on housing prices and quantities. After other countries introduced foreign-buyer taxes beginning in 2011, both house prices and quantities increased more in locations with high foreign-born populations. An increase in global capital inflows, instrumented with tax policy changes scaled by immigrant exposure, increased prices and quantities over 2011–2018. We combine these estimates to construct new local supply elasticities, which average 0.26 and range from 0.06 to 0.9. Compared to prior estimates, our elasticities are more inelastic and change cities’ relative rankings.

We explore how much borrowers value student debt relief in the setting of the federal Teacher Loan Forgiveness program, which cancels between $5,000 and $17,500 in debt for teachers at high-need schools. Using both quasi-experimental evidence and a randomized controlled trial, we find that neither eligibility nor a targeted information intervention affects employment decisions. Information was found to increase application and receipt rates for teachers who had achieved eligibility. Evidence from contingent valuation surveys suggests that teachers do in general value debt relief. Incorporating qualitative evidence, we conclude that take-up may be constrained by program complexity and administrative barriers.

Regional shocks are an important feature of the US economy. Households' ability to self-insure against these shocks depends on how they affect local interest rates. In the United States, most borrowing occurs through the mortgage market and is influenced by the presence of government-sponsored enterprises (GSE). We establish that despite large regional variation in predictable default risk, GSE mortgage rates for otherwise identical loans do not vary spatially. In contrast, the private market does set interest rates which vary with local risk. We use a spatial model of collateralized borrowing to show that the national interest rate policy substantially affects welfare by redistributing resources across regions. (JEL E32, E43, G21, G28, L32, R11, R31)

We use credit report data to study consumer financial distress in America. We report large, persistent disparities in financial distress across regions. To understand these patterns, we conduct a “movers” analysis. For collections and default, there is only weak convergence following a move, suggesting these types of distress are not primarily caused by place-based factors (e.g., local economic conditions and state laws) but instead reflect person-based characteristics (e.g., financial literacy and risk preferences). In contrast, for personal bankruptcy, we find a sizable place-based effect, which is consistent with anecdotal evidence on how local legal factors influence personal bankruptcy.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Households that fail to refinance their mortgage when interest rates decline lose out on substantial savings. Using a random sample of outstanding US mortgages in December 2010, we estimate that approximately 20% of unconstrained households for whom refinancing was optimal had not done so. The median household would save $160/month over the remaining life of the loan, for a total present-discounted value of forgone savings of $11,500, a particularly large consumer financial mistake. To shed light on possible mechanisms, we also provide results from a mail campaign targeted at a sample of homeowners who could benefit from refinancing.

How do collateral requirements impact consumer borrowing behavior? Using administrative loan application and performance data from the U.S. Federal Disaster Loan Program, we exploit a loan amount threshold above which households must post their residence as collateral. Our bunching estimates suggest that the median borrower is willing to give up 40% of their loan amount to avoid posting collateral. Exploiting time variation in the threshold, we estimate collateral causally reduces default rates by 36%. Finally, we structurally estimate households' attachment to their homes, net of any equity, and find a median value of $11,000. Attachment creates a wedge between lender and borrower valuation of collateral of 15%. Our results explain high perceived default costs in the mortgage market, and document the importance of collateral for reducing moral hazard in consumer credit markets.

Exploiting variation in the timing of resets of adjustable-rate mortgages (ARMs), we find that a sizable decline in mortgage payments (up to 50 percent) induces a significant increase in car purchases (up to 35 percent). This effect is attenuated by voluntary deleveraging. Borrowers with lower incomes and housing wealth have significantly higher marginal propensity to consume. Areas with a larger share of ARMs were more responsive to lower interest rates and saw a relative decline in defaults and an increase in house prices, car purchases, and employment. Household balance sheets and mortgage contract rigidity are important for monetary policy pass-through. (JEL D12, D14, E43, E52, G21, R31)