Some Loans Are More Equal than Others: Third–Party Originations and Defaults in the Subprime Mortgage Industry

We show how agency problems between lenders (principals) and third–party originators (TPO; agents) imply that TPO–originated loans are more likely to default than similar retail–originated loans. The nature of the agency problem is that TPOs are compensated for writing loans, but are not completely held accountable for the subsequent performance of those loans. Using a hazard model with jointly estimated competing risks and unobserved heterogeneity, we find empirical support for the TPO/default prediction using individual fixed–rate subprime loans with first liens secured by residential real estate originated between January 1, 1996, and December 31, 1998. We find that apparently equal loans (similar ability to pay, option incentives and term) can have unequal default probabilities. We also find that, initially, the agency–cost risk was not priced. At first, the market did not recognize the higher channel risk, since TPO and retail loans received similar interest rates even though the TPO loans were more likely to default. We also show that this inefficiency was short–lived. As the difference in default rates became apparent, interest rates on TPO loans rose about 50 basis points above otherwise similar retail loans.     

合理利用国际公约降低贷款利息支出——以哈萨克斯坦国际项目合作为例

随着中哈两国政治经济合作的日益加深,在哈中资企业的发展规模不断扩大。由于哈国银行的贷款利率较高,为节省利息支出,中资企业经常到国际市场上借贷。银行获得利息收入须缴纳相应的税款,但银行一般都要求借款人承担预提税,并将此作为贷款的一个基本条件。根据哈国税法,境外法人金融企业在哈国获得的利息收入需要支付15%的所得税,其他服务费用的所得税税率为20%。在适用国际公约之后,利息支出可享受所得税税率优惠。为此,借款企业须注意贷款人是否在避税港注册,并避免恶意使用纳税国际公约,另外还要按照程序要求及时办理境外纳税人的国民证明材料。     

Do Substantial Horizontal Mergers Generate Significant Price Effects? Evidence From The Banking Industry

This study examines the price effects of recent US bank mergers that substantially increased local market concentration. Using the deposit interest rates that banks offer their customers as our price measure, we find that, over the 1991–94 time period, deposit rates offered by participants in substantial horizontal mergers and their local market rivals declined by a greater percentage than did deposit rates offered by banks not operating in markets in which such mergers took place. We interpret our results as evidence that these mergers led to increased market power.     

Subprime Refinancing: Equity Extraction and Mortgage Termination

This article examines the choice of borrowers to extract wealth from housing in the high-cost (subprime) segment of the mortgage market and assesses the prepayment and default performance of these cash-out refinance loans relative to the rate of refinance loans. Consistent with survey evidence, the propensity to extract equity is sensitive to the relative interest rates of other forms of consumer debt. After the loan is originated, our results indicate that cash-out refinances perform differently from non–cash-out refinances. For example, cash-outs are less likely to default or prepay, and the termination of cash-outs is more sensitive to changing interest rates and house prices.     

Credit Availability and the Structure of the Homebuilding Industry

We investigate the role of disruptions to the structure of the homebuilding industry due to fluctuations in the availability of bank credit. We find a sustained decline in the large private homebuilder market share series over the period from 1988 to 1993 when many banks with deteriorated health reduced their lending in order to raise capital ratios. Regression analysis at the metropolitan statistical area level supports the hypothesis that, in areas where banks were less well capitalized and had more problem construction loans, the market shares of large private homebuilders that relied primarily on bank credit to finance their production suffered at the expense of the public homebuilders that had better access to external funds, in large part due to their direct access to public capital markets.     

The Effects of Securitization on Mortgage Market Yields: A Cointegration Analysis

Securitization of the residential mortgage market has completely transformed the process of financing home loans in the U.S. over the last two decades. We examine the effects of securitization on yield spreads in the primary mortgage market. Cointegration techniques are employed to test the relationship between the increasing volume of mortgage securities over time and the yield spread on mortgage loan rates. We find that a 10% increase in the level of mortgage securitization as a proportion of total mortgage originations decreases yield spreads on home loans by as much as 20 basis points. Other results indicate that, while prepayment speed has a significant effect on mortgage yield spreads, default risk does not. We conclude that securitization of the residential mortgage market plays an important role in decreasing the cost of home loans.     

Bank Capital and the Credit Crunch: The Roles of Risk-Weighted and Unweighted Capital Regulations

We investigated whether in recent years banks have increased their holdings of securities at the expense of their holdings of business loans in response to shortfalls of their capital relative to risk-weighted capital standards and relative to a capital standard that made no explicit allowance for credit risk. We estimated that bank credit fell by about $4.50 for each $1 that a bank's capital fell short of the unweighted capital standard. Banks that had less capital than required by the risk-weighted standard appear to have shifted away from assets with low risk weights (securities and single-family mortgages) and to have shifted toward assets with higher risk weights (commercial real estate and commercial and industrial loans). When we included both shortfall variables in a regression, shortfalls relative to the unweighted capital standard significantly affected bank credit, while shortfalls of capital relative to the risk-weighted standard did not. We found no significant effects of capital shortfalls at other, local-competitor banks on bank portfolios. Delinquencies in a given category of a bank's loans generally had significantly negative effects on that bank's holdings of loans in that category. In contrast, banks tended to increase holdings of loans in categories in which local-competitor banks were experiencing higher delinquency rates.     

Structure and Profitability in Banking Markets

We use the structure-performance model and regression analysis to investigate a number of analytical issues that often arise in evaluating competition in connection with bank mergers and that are generally relevant to mergers in other industries. Perhaps our most consistent and strongest finding is that the local market HHI is positively and significantly related to profitability. We also find that the number of organizations and the level of recent deposit growth may provide some additional information on the level of competition. Finally, several variables including market size, the number of large banking firms, deposits per office, and resident migration rates exhibit similar relationships to profitability in the bivariate analysis, suggesting that there may be some characteristic associated with market size, density, or attractiveness that is important for competition.     

The Effect of Conforming Loan Status on Mortgage Yield Spreads: A Loan Level Analysis

The magnitude of the effect of government-sponsored enterprise purchases on primary mortgage market rates has been a difficult research question with differing data and competing methodologies producing varying results. Here we present a new approach using loan level data and controlling for credit risk differentials between conforming and nonconforming loans. Our method also addresses econometric problems of endogeneity and sample selection bias. We find that conforming loans have yield spreads about 5.5% lower compared to other loans on a risk-adjusted basis. This is lower than previous estimates appearing in the literature.     

A Note on Equivalent Fixed Rate and Variable Rate Loans; Borrower's Perspective

A common situation is where a borrower is offered the choice of two types of loans—a fixed interest rate loan for a fixed period or a variable interest (floating interest) rate loan. Usual wisdom and advice is that the borrower opts for the fixed rate loan if interest rates are anticipated to rise in the future or opts for the variable rate loan if interest rates are anticipated to fall. However, depending on the magnitude of the rates offered, and the rate uncertainty in the market, such wisdom may not always be well founded. This note demonstrates why this might be. It derives a readily usable, low-mathematical-background expression showing, for borrowers, when fixed and variable rate loans are equivalent and when one rate type is better/worse than the other.     

An Analysis of the Deposit-taking Market of Hong Kong

This paper analyzes the deposit-takingmarket in Hong Kong prior to the deregulation ofinterest rates in 1994. We argue that bankingregulations, in the forms of branching restrictionsand interest-rate ceilings, had created amonopsonistic market for short-term bank deposits. Asa result, banks in Hong Kong had earned asubstantially wider interest-rate margin than banks inother Asia-Pacific countries and the United States. We provide procedures to estimate the economicsignificance of the foregone interest and find themonopsonistic rent to be in the order of 1% of theGross Domestic Product of Hong Kong for the period1987 through 1994.     

Switching costs in local credit markets

Switching costs are a key determinant of market performance. This paper tests their existence in the corporate loan market in which they are likely to play a central role because of the complexity of contracts and the relevance of informational problems. Using very detailed data at bank-firm level on four Italian local credit markets we empirically show that firms tend to iterate their choice of the main bank over time. This inertia is not related to unobserved and time invariant firms' preferences across banks and can be attributed to the existence of switching costs. Moreover these costs are higher for single-bank firms. We also offer evidence that banks price discriminate between new and old borrowers by charging lower interest rates to the former in order to cover part of the switching costs. The discount amounts to about 44 basis points and is equal to 7% of the average interest rate. These results prove robust to a number of other potential identification drawbacks.     

The Effects of Securitization on Consumer Mortgage Costs

We examine the effects of securitization on two dimensions of consumer mortgage costs: coupon rates and loan origination fees. We find no evidence that securitization reduces the coupon rates on fixed- or adjustable-rate mortgages. Instead, securitization appears to lower mortgage loan origination fees, resulting in substantial savings for consumers. Securitization activity includes passthrough creation and collateralized mortgage obligation (CMO) creation. We test for differences between the effects of passthrough and CMO creation on primary mortgage costs. Surprisingly, these activities appear to have indistinguishable effects on loan rates and origination fees, suggesting that a large derivatives market for mortgage loans is not creating value for consumers.     

Location and competition in retail banking

We investigate the impact of banking deregulation during the 1990s on consumer welfare. We estimate a spatial model of consumer demand for retail bank deposits that explicitly accounts for consumer disutility from distance traveled. This is important given the substantial changes in banks' branch networks observed in the data. Our model indicates that cross-price elasticities between banks whose branches are close to consumers (‘close’ banks) are larger than those between ‘far’ banks and more than double the cross-price elasticity of ‘close’ banks with respect to ‘far’ banks. We distinguish between thrifts and other banks and find that within-thrift competitive effects are stronger than within-bank effects or those between thrifts and banks. We use our estimates to predict the effect of changes in market structure on consumer welfare following the branching deregulation of the Riegle–Neal Act of 1994. Our results indicate that the median household gained around $60 per year from the changes. Approximately two thirds of the gains come from within-market changes in market structure. The gains were greater in markets with high initial numbers of banks than elsewhere.     

经济政策不确定性与银行贷款损失准备计提

银行贷款损失准备计提的顺周期特征加剧金融系统的不稳定,受到学界和业界的广泛关注,监管机构逐步要求银行采取前瞻性的计提策略以应对贷款损失准备的顺周期特征,经济发展越来越受到宏观经济政策不确定性的影响,银行是否考虑当前经济政策不确定性,对贷款损失准备进行前瞻性计提?本文选取2004—2017年中国126家商业银行数据,研究经济政策不确定性对银行贷款损失准备计提的影响。实证分析发现,经济政策不确定性与贷款损失准备计提显著正相关,经济政策不确定性越大,贷款损失准备计提越多,在考虑地级市领导人更替、银行高管更替、宏观经济层面遗漏变量,以及使用工具变量的内生性分析后,结果保持稳健。异质性分析发现,这一效应在上市银行、外资持股比例较高、中小银行中表现更为明显。从银行风险管理角度的机制分析发现,不良贷款越多、风险储备越少的银行,经济政策不确定性增加时,计提的贷款损失准备越多,说明风险预防动机是其主要目的。进一步的分析发现,银行在经济政策不确定性较高时增加计提,有助于稳定银行收益、降低银行破产风险。本文的研究从经济政策不确定性的视角,为中国银行贷款损失准备计提的理论和实践提供了新的解释。     

Credit rationing and implicit contract theory : An empirical study

This paper investigate whether or not implicit contract relations predominate in the Japanese bank loan market and produce equilibrium credit rationing. The empirical evidence suggests that risks are shared between banks and firms through interest rate arrangements. This implies that commercial banks in Japan operate in a market dominated by implicit contract relations. However, the evidence does not support the view that Japanese commercial banks execute credit rationing in the sense of Fried and Howitt (1980). Furthermore, the results show that large banks differ from small banks in the risk consideration of loan contracts. These empirical results are completely consistent with the intermarket business group hypothesis such that the group formation aims to share risks and profits among members.     

Dynamic branching and interest rate competition of commercial banks: Evidence from Hungary

I supplement previous models of bank competition by incorporating the endogenous branching choices of commercial banks. I apply a dynamic structural model of banks' branching and interest rate choices to a unique bank-level dataset on Hungarian commercial banks during 2004–2007. I find that banks charge a premium in interest rates for relative branch network dominance, and banks with relatively smaller networks are less likely to close branches. I present significant and robust estimates of branch setup costs and scrap values, and discuss the potential use of branching restrictions as regulatory tools to alter lending rates and consumer surplus.     

The Influence of Credit Union and Savings and Loan Competition on Bank Deposit Rates in Idaho and Montana

This study examines the effect of S & L and credit union competition on bank behaviorin Idaho and Montana. A structure-performance OLSmodel is used to estimate bank interest rates oncertain deposits. Two key independent variables arelocal market share of credit unions and S & Ldeposits. Overall, previous studies found littleevidence that thrift competition affects bankperformance. We found some evidence that thriftcompetition, especially from credit unions, resultsin higher interest rates for bank CDs. Theseresults have policy implications as banking groupscurrently seek to restrict credit union competition.     

Internet Search Behavior,Liquidity and Prices in the Housing Market

We employ detailed internet search data to examine price and liquidity dynamics of the Dutch housing market. We show that the number of clicks on properties listed online proxies demand and the number of listed properties proxies supply. From this internet search behavior, we create a market tightness indicator and we find that this indicator Granger causes changes in both house prices and housing market liquidity. The results of a panel VAR suggest that a demand shock results in a temporary increase in liquidity and a permanent increase in prices in urban areas. This is in accordance with search and matching models.     

The Effect of Consumer Switching Costs on Prices: A Theory and its Application to the Bank Deposit Market

As demonstrated by Klemperer (1987), if households face a cost of switching among brands of a differentiated good, pricing is likely to be more competitive, the greater is the fraction of customers that move into or around the market. I generalize this theory to a world with arbitrary market structure and test it empirically using panel data on bank retail deposit interest rates. I find that the amount of household migration in a market has a significant competitive influence on price markups, that is, a positive effect on the level of deposit interest rates. Consistent with the model, the magnitude of this effect depends in some cases upon the degree of market concentration.