The Impact of Second Loans on Subprime Mortgage Defaults

An estimated 12.6% of primary mortgage loans were simultaneously originated with a second loan from 2004 until 2008, although relatively little is known about how the presence of such subordinate loans affects the default decisions of borrowers. We use a novel data series of loan servicing records from 2002 until 2010 to identify such borrowers and find evidence that the default behavior of these borrowers significantly differs from borrowers without second loans. Estimating a discrete‐time proportional odds hazard model, we find borrowers with a second loan were 62.7% more likely to default each month on their primary loan when conditioning alone on the attributes of the primary loan. However, borrowers of second loans were 58.3% less likely to default on their primary loan as compared to single‐loan borrowers with equivalent current combined attributes (i.e., loan‐to‐value, balance and interest rate). We hypothesize and provide empirical evidence that this occurs because borrowers with second loans have the option to sequentially default on each loan since subordinate lenders will not pursue foreclosure if borrowers have insufficient equity. Lenders of defaulted subordinate debt may revisit their decision to foreclose in the future after housing markets start to recover, thus prompting a new round of foreclosures.     

The Engineering Economist

ABSTRACT There are many different notations used to describe industrial property mortality; some are mathematical formulas, while others use a graphical format. The Weibull distribution is a mathematical formulation and is commonly used in life testing and quality control. Because of the kinship of life testing and industrial property mortality, the Weibull distribution was selected as a possible distribution to describe mortality characteristics. Tests were performed to determine how well the distribution fulfilled this function. The results indicate that the Weibull distribution describes industrial property mortality patterns as well as the Iowa-type curves. On this basis, the distribution shows promise for use in life analysis.     

Two Federal Views of Advanced Waste Treatment

This study examines the potential impact of a hypothetical 12 percent investment tax credit on new capital investments that require the introduction of new technology. Firms showed some support for this type of a tax credit. However, the purpose of giving a tax credit for investing in new technology is not simply to give a tax “break” to businesses. The underlying objective is to increase hiring, thereby stimulating employment. This research strongly suggests that this will not happen. The results cast a shadow on the impact of all new technology investments on job creation.     

Telecommunication in the US: From Regulation to Competition (Almost)

Alfred E. Kahn was an observer and practitioner of telecommunications regulation as technology changed the industry from a natural monopoly to a platform-based oligopoly among telephone, cable, satellite, and wireless carriers. Regulation and legislation were slow to recognize these changes, and large welfare losses occurred, some of which could have been avoided if regulators, legislators and economists had followed Fred’s economic advice: Prices must be informed by costs; the relevant costs are actual incremental costs; costs and prices are an outcome of a Schumpeterian competitive process, not the starting point; excluding firms from markets is fundamentally anticompetitive; a reliance on imperfect markets subject to antitrust law is preferable to necessarily imperfect regulation; and a regulatory transition to deregulation entails propensities to micromanage the process to generate preferred outcomes, visible competitors, and expedient price reductions.