Protecting Minority Homeowners: Race,Foreclosure Counseling and Mortgage Modifications

Millions of minority homeowners are at risk of losing their homes as a result of the housing crisis due to mortgage foreclosure and home repossession. One consumer‐oriented policy response to this crisis is mortgage default counseling for borrowers. This study examines the rate at which minority borrowers seek default counseling and the resulting correlation between counseling and the probability that a borrower obtains a modification of his/her original mortgage contract terms. The results suggest that African Americans are more likely to be counseled, relative to Whites. However, Latinos or other non‐White groups are no more or less likely to be counseled. The probability of loan modifications among counseled African Americans is also higher than other counseled borrowers. These results suggest that counseling policies and the public subsidy of default counseling may be one approach for promoting consumer financial well‐being of these households, but also suggest counseling efforts might be better designed for other minority groups. These results also have implications for the application of counseling to other mortgage decisions, such as refinance .     

Incentives for Loan Repayments: Evidence from a Randomized Field Study

This field experiment tests an innovative approach for helping automobile loan borrowers make their loan payments on time. Borrowers were randomly assigned to a loan with an interest rate reduction after three on‐time payments; borrowers assigned to this loan show fewer late payments compared to a control group. While the financial incentive of the interest rate reduction was small, the offer of a rate reduction appears to result in borrowers attending to due dates. This result illustrates that lenders can use simple mechanisms to encourage more positive repayment patterns among borrowers with a history of late payments.     

Factors Determining Credit Worthiness of Low Income Consumers

The purpose of this study was to identify variables that can be used in granting credit to low income consumers. Credit behavior, as exemplified by loan repayment, was examined with respect to economic, demographic, and socioeconomic characteristics of borrowers from a credit union that had been established to serve low income people in Columbus, Ohio. Findings indicate that early warning signals—default and delinquency—are given by borrowers when a loan is going bad. Consumer education and financial counseling might help eliminate this problem.     

INCOME DISTRIBUTION,CREDIT RATIONING AND HOUSEHOLDS' DEBT

In this paper, we present a model of an economy with household debt, and discuss the conditions under which financial fragility arises. Financial instability is driven by distributive effects. In addition to the income transfers associated with interest payments, the accumulation of debt feeds back with the distribution of income between labour and capital. The model also gives a central role to banks and credit rationing. Contrary to the existing literature, credit supply does not depend on the characteristics of borrowers, but on those of banks. There is a feedback channel between the health of the financial system and the quantity of credit in the economy. We show that there is a diversity of channels through which financial fragility may arise. We identify three channels: a debt–deflation effect à la Fisher, a credit‐financed consumption boom and an exhilarating debt effect.     

Financial Turmoil Still Ahead？

Asub-prime mortgage refers to a type of loai3 that is normally made to borrowers who do not qualify for market interest rates,often due to a variety of risk factors,such as their income level,size of the down payment,credit history,or employment status. As a result of the borrower＇s low credit rating, a conventional mortgage cannot be offered because the lender views the borrower as having a greater-than-average risk of defaulting on the loan. Lending institutions often charge interest on sub-prime mortgages at a rate that is higher than a conventional mortgage in order to compensate for this added risk. Recently,     

Banking relationship and default priority in consumer credit: Evidence from Thai microdata

Banks play an important role in consumer credit, and when borrowers face a decision on whether to default on mortgage or non-mortgage loans first, banking relationship may matter. Our study provides first evidence into the interplay between banking relationship and consumer default priority via credit bureau data of 1 million individuals in Thailand. We find that same-bank borrowers are less likely to default on mortgage loans first, and borrowers with longer banking relationship and lower switching cost are more likely to default on mortgage loans first (which is welfare-improving). Our results suggest that banking relationship can lead to better outcomes for defaulting borrowers even when switching cost is high.     

Determinants of the Demand for Home Equity Credit Lines

From the Survey of Consumer Finances conducted in 1989 and 1992 a logit model was tested for demographic and financial influences on household decisions to utilize home equity line credit. Results indicate that among households with credit lines other than credit card lines or business lines, the choice of a home equity credit line in lieu of another type of check credit line is influenced principally by percentage of equity in the home, income, net worth, age of the borrower, and credit price. Several implications may be derived from this study. As the markets reflect more complete information about the low-risk attributes of this credit, the convenience as a payment mechanism, and the tax subsidy to homeowners, it is expected that home equity credit lines users will be distributed more evenly across income and wealth categories.     

How federally insured reverse mortgages affect the credit outcomes of older adults

This study examines how the extraction of home equity through the federally insured Home Equity Conversion Mortgage (HECM) affects the credit outcomes of older adults. We use data from the Federal Reserve Bank of New York/Equifax Consumer Credit Panel, supplemented with a unique credit panel data set of reverse mortgage borrowers. Using matched sample difference-in-differences with individual fixed effects, we estimate credit outcomes for older adults who borrowed through a HECM between 2008 and 2011, relative to older homeowners not borrowing from home equity. Our results indicate that the HECM is associated with a short-term reduction in revolving credit card debt, as well as a reduction in the probability of bankruptcy. We find some evidence of heterogeneous treatment effects, where older adults with higher levels of consumer debt prior to originating a HECM experience larger subsequent declines in debt, increases in credit score, and steeper reductions in bankruptcy rates.     

Vehicle Acquisitions: Leasing or Financing?

In this study, we investigate household vehicle leasing versus financing behavior using the Interview Survey Portions of the 2001 Consumer Expenditure Survey. Two research questions are addressed in this study: (1) What are the demographics of those who lease as opposed to those who finance, and (2) What are the major factors affecting a consumer's probability of leasing versus financing when acquiring vehicles? Findings show that among income and demographic characteristics, being older, Caucasian or Hispanic, college educated, living in urban Northeast and Midwest, living in large Metropolitan Statistical Areas (MSAs), not having teenagers in the family, and having a higher income increase a consumer's probability to lease a vehicle. Most of these income and demographic effects either become smaller or disappear after the vehicle characteristics are controlled for. Among vehicle characteristics, being newer, Japanese or European made, luxury brand, with more cylinders, with power brakes, sunroof, and four‐wheel drive increase the probability of leasing. Purchasing the vehicle new instead of used, having a lower down payment and monthly payments, and having a smaller number of contracted payments also increase the probability of leasing.     

Affirmative Disclosure In Home Purchasing

This paper investigates significant gaps in the information available to prospective home buyers as perceived by recent purchasers. The gaps in available information perceived by recent purchasers included the fair value of the house, its structural condition, and the ambience of the neighborhood. It was found that independent or personal sources were used for subjective information while objective data tended to be obtained from marketer-dominated sources.     

A replication study of the credit card effect on spending behavior and an extension to mobile payments

Prior research has shown that credit cards increase spending behavior as measured by the willingness to pay (WTP) or basket value. This research aims to replicate the credit card effect and to extend this effect to mobile payments. In four empirical studies, of which three online studies and one lab study (total n = 692), we manipulated payment methods (i.e., cash, credit cards, and mobile payments) and measured spending behavior (i.e., WTP and basket value). Across four studies, we did not replicate the credit card effect on either measure of spending behavior, suggesting the effect in the literature may be inflated or may have been fading away. A meta-analysis of the relevant literature revealed the expected credit card effect but also showed that the credit card effect has become weaker through the years and that this effect is contingent on the location of data collection. We also did not find evidence that the credit card effect extends to mobile payments on either measure of spending behavior in the three online studies. However, we found a significant difference between mobile payments and cash on the basket value measure (but not for the WTP measure) in the lab study. This paper also explored whether the pain of payment or payment convenience may be a mechanism underlying the relationship between payment methods and spending behavior. Although the pain of payment tended to be lower and the payment convenience tended to be higher for mobile payments, these effects did not translate into more spending behaviors.     

Gender Differences in Debt Repayment Problems after Divorce

Studies have shown that a growing number of divorced women were experiencing debt repayment problems during the 1980s. This study uses data from the Panel Study of Income Dynamics to (1) examine how debt repayment problems differ by marital status and gender and (2) investigate the role that supplemental income payments play in helping to mitigate repayment problems. The results show that divorced men and women are more likely to default on their debt obligations than married households. Further analysis reveals that increases in welfare payments significantly decrease the likelihood of default for divorced women but do not affect the probability of default for divorced men and married households. There is no evidence that payments related to child support and alimony affect default rates. The findings suggest that welfare benefits may help to mitigate the economic consequences of divorce for women.     

Determinants of indebtedness among young adults: Impacts of lender guidelines,explicit information and financial (over)confidence

For most people, borrowing money is a necessary aspect of life in the 21st century. Wisely handled, loans give consumers access to consumption too expensive for most individuals to purchase with cash, such as homes and cars. However, history shows that taking on too much debt can be detrimental for the individual consumer as well as society as a whole. In this paper, we investigate determinants of over‐indebtedness among young adults. We perform three studies in a setting focused on buying and borrowing money for a home. We show that, compared with an overall mortgage amount, explicit information about monthly payments reduces the tendency to take on too much debt (Study 1), that the amount borrowed depends on standards regarding the loan amount communicated through guidelines from the lender (Study 2), and that borrowers who are overconfident about their financial abilities tend to borrow more than less confident individuals (Study 3). These determinants and their policy implications are discussed.     

The Impact of Credit Counseling on Subsequent Borrower Behavior

The study examined the impact of individualized credit counseling delivered to nearly 8,000 consumer clients during 1997. Credit bureau data provided objective measures of credit performance at a variety of margins between 1997 and 2000 for counseled clients, relative to a comparison group of uncounseled borrowers. Receipt of counseling was associated with a positive change in borrower credit profiles. Techniques to control for self‐selection into counseling reveal that much of the improvement was attributable to characteristics unique to consumers who sought counseling. But counseling itself was associated with substantial reductions in debt and account usage, and appeared to provide the greatest benefit to those borrowers who had the least ability to handle credit prior to counseling.     

Who Pays for Credit Cards?

The authors model side payments in a competitive credit‐card market. If competitive retailers absorb the cost of accepting credit cards by charging a higher goods price to everyone, then someone must subsidize convenience users of credit cards to prevent them from defecting to merchants who do not accept cards. The side payment could be financed by card users who roll over balances and pay interest. It is rational for them to do so if their subjective discount rates are high enough. Charging different prices to different customers based on the underlying cost of the payment instrument would be more efficient for retailers. However, banks may offer incentives to attract convenience users because some of them may become interest‐paying users (“revolvers”) in the future.     

A Profile of Financially At‐Risk College Students

Using a random sample of college students, this study identifies the factors that significantly affect the probability a college student is financially at risk for mismanaging/misusing credit. Financially at‐risk students are more likely to be financially independent, to receive need‐based financial aid, to hold $1000 or more in other debt, and to have acquired their credit card(s) by mail, at a retail store, and/or at a campus table. Students having difficulty making credit card payments are also more likely to be female, black, and/or Hispanic. Campus administrators and financial professionals can use this information to better allocate their resources and develop materials that specifically target those students who need them most.     

DYNAMIC DEFAULTABLE TERM STRUCTURE MODELING BEYOND THE INTENSITY PARADIGM

The two main approaches in credit risk are the structural approach pioneered by Merton and the reduced‐form framework proposed by Jarrow and Turnbull and by Artzner and Delbaen. The goal of this paper is to provide a unified view on both approaches. This is achieved by studying reduced‐form approaches under weak assumptions. In particular, we do not assume the global existence of a default intensity and allow default at fixed or predictable times, such as coupon payment dates, with positive probability. In this generalized framework, we study dynamic term structures prone to default risk following the forward‐rate approach proposed by Heath, Jarrow, and Morton. It turns out that previously considered models lead to arbitrage possibilities when default can happen at a predictable time. A suitable generalization of the forward‐rate approach contains an additional stochastic integral with atoms at predictable times and necessary and sufficient conditions for an appropriate no‐arbitrage condition are given. For efficient implementations, we develop a new class of affine models that do not satisfy the standard assumption of stochastic continuity. The chosen approach is intimately related to the theory of enlargement of filtrations, for which we provide an example by means of filtering theory where the Azéma supermartingale contains upward and downward jumps, both at predictable and totally inaccessible stopping times.     

国际货款支付中L/C风险规避的实证分析

在信用证（L/C）支付方式下,银行充当了进口方和出口方之间的支付中介和保证人,它使银行信用介入商业信用,在很大程度上缓解了买卖双方互不信任的矛盾,满足了买卖双方加速资金周转的愿望。由于L/C业务的复杂性和L/C自身存在的缺陷,交易中的各个当事人都要面对一定的风险。L/C交易一般涉及三方当事人,即开证申请人（在国际贸易中一般为买方或进口商）、开证银行、受益人（国际贸易中的卖方或者出口商）,在这三方当事人中,任何一方不作为都可能给其他两方带来风险,需要采取相应的风险防范措施。     

Assessing credit quality from the equity market: can a structural approach forecast credit ratings?

We investigate the empirical performance of default probability prediction based on Merton's (1974) structural credit risk model. More specifically, we study if distance‐to‐default is a sufficient statistic for the equity market information concerning the credit quality of the debt‐issuing firm. We show that a simple reduced form model outperforms the Merton (1974) model for both in‐sample fitting and out‐of‐sample predictability for credit ratings, and that both can be greatly improved by including the firm's equity value as an additional variable. Moreover, the empirical performance of this hybrid model is very similar to that of the simple reduced form model. As a result, we conclude that distant‐to‐default alone does not adequately capture the firm's credit quality information from the equity market. Copyright © 2007 ASAC. Published by John Wiley & Sons, Ltd.     

The birth of the housing consumer in the United States, 1918–1960

Between 1918 and 1960, those Americans who were able to buy a home learned to think and act as housing consumers. By 1960, the typical couple purchased a finished dwelling from a speculative builder instead of hiring the services of a contractor. Builders now produced for an anonymous market. They learned how to sell, and buyers learned to expect, a comprehensive and standardized package of services that included long‐term financing. Such financing required, and buttressed, a Fordist regime of mass production and consumption, and was promoted after 1934 by a new federal agency. It stabilized the economy by pushing families to make long‐range spending plans, while shaping their pattern of monthly expenditures. Increasingly, Americans came to think of homes as commodities, as investments and as means of self‐expression. They enacted these assumptions by browsing through model homes, by making elaborate financial calculations, by borrowing and by taking on home repair and improvement projects. These changes were promoted by the real estate industry and the state, and were soon accepted for the comfort and convenience they offered.