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94 posts on "Household Finance"

March 27, 2017

Being Up Front about the FHA’s Up-Front Mortgage Insurance Premiums



LSE_2017_premium-structure_tracy_460_art

The Federal Housing Administration (FHA) played a significant role in maintaining mortgage credit availability following the onset of the subprime mortgage crisis and through the Great Recession. Not surprisingly, the FHA’s expansion during a period of falling home prices and deteriorating economic conditions resulted in material losses to its mortgage insurance fund arising from mortgage defaults and foreclosures. These losses, in turn, have generated increased policy interest in the design of the FHA mortgage insurance program. In this post we analyze how the cost of FHA insurance is shared between mortgage defaulters and non-defaulters and find that non-defaulters pay a disproportionate share. Although the ten-year cumulative default rate for our sample of FHA mortgages is 26 percent, defaulters only pay 17 percent of total mortgage insurance premiums. We discuss changes to the FHA mortgage insurance pricing that would shift more of the premium cost to defaulters.

Continue reading "Being Up Front about the FHA’s Up-Front Mortgage Insurance Premiums" »

Posted by Blog Author at 7:00 AM in Credit, Household Finance, Mortgages | Permalink | Comments (1)

March 01, 2017

When Debts Compete, Which Wins?



Editors’ note: The labels on the x-axis of the chart “Debt Payment Prioritization by Year” have been corrected. (March 7, 2017, 9:10 a.m.)

LSE_When Debts Compete, Which Wins?

When faced with financial hardship, borrowers might choose to repay some debts while falling behind on others—potentially going into default. Such choices provide insight into consumers’ spending priorities and can help us better understand the condition of borrowers under financial distress. In this post, we examine how consumers prioritize their default choices. Do consumers under financial stress default on their credit cards first? Or are they more likely to default on their mortgage?

Continue reading "When Debts Compete, Which Wins?" »

Posted by Blog Author at 7:00 AM in Credit, Household Finance | Permalink | Comments (8)

February 16, 2017

Just Released: Total Household Debt Nears 2008 Peak but Debt Picture Looks Much Different



LSE_2017_hhdc-Q4_sculley_460_art

The latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data showed a substantial increase in aggregate household debt balances in the fourth quarter of 2016 and for the year as a whole. As of December 31, 2016, total household debt stood at $12.58 trillion, an increase of $226 billion (or 1.8 percent) from the third quarter of 2016. Total household debt is now just 0.8 percent ($99 billion) below its third quarter 2008 peak of $12.68 trillion, and 12.8 percent above the second quarter 2013 trough. But debt looks very different in 2016 than it did the last time we saw this level of indebtedness.

Continue reading "Just Released: Total Household Debt Nears 2008 Peak but Debt Picture Looks Much Different" »

Posted by Blog Author at 11:10 AM in Household Finance | Permalink | Comments (2)

The Homeownership Gap Is Finally Closing



LSE_The Homeownership Gap Is Finally Closing

The homeownership rate peaked at 69 percent in late 2004. By the summer of 2016, it had dropped below 63 percent—exactly where it was when the government started reporting these data back in 1965. The housing bust played a central role in this decline. We capture this effect through what we call the homeownership gap—the difference between the official homeownership rate and the “effective” rate where only homeowners with positive equity in their house are counted. The effective rate takes into account that a borrower does not in an economic sense own the house if the mortgage debt is greater than the house’s value. In this post, we show that between 2005 and 2012, the effective rate fell well below, and put downward pressure on, the official rate. We also demonstrate that the increase in house prices and the exit of millions of homeowners through foreclosure has largely eliminated the gap between the official and effective homeownership rates.

Continue reading "The Homeownership Gap Is Finally Closing" »

Posted by Blog Author at 7:00 AM in Foreclosure, Household Finance, Housing | Permalink | Comments (0)

February 15, 2017

Houses as ATMs No Longer



LSE_Houses as ATMs No Longer

Housing equity is the primary form of collateral that households use for borrowing. This makes it a potentially important source of consumption funding, especially for younger households. In a previous post we showed that owner’s equity in residential real estate has finally, thanks to increasing home prices, rebounded to and essentially re-attained its 2005 peak level. Yet in spite of a gain of more than $7 trillion in housing equity since 2012, so far homeowners haven’t been tapping this equity at anything like the pace we witnessed during the housing boom that ended in 2006. In this post, we analyze the changes in equity withdrawal.

Continue reading "Houses as ATMs No Longer" »

Posted by Blog Author at 7:00 AM in Credit, Household Finance, Mortgages | Permalink | Comments (0)

February 14, 2017

The Evolution of Home Equity Ownership



LSE_The Evolution of Home Equity Ownership

In yesterday’s post, we discussed the extreme swings that household leverage has taken since 2005, using combined loan-to-value (CLTV) ratios for housing as our metric. We also explored the risks that current household leverage presents in the event of a significant downturn in prices. Today we reverse the perspective, and consider housing equity—the value of housing net of all debt for which it serves as collateral. For the majority of households, housing equity is the principal form of wealth, other than human capital, and it thus represents an important form of potential collateral for borrowing. In that sense, housing equity is an opportunity in the same way that housing leverage is a risk. It turns out that aggregate housing equity at the end of 2015 was very close, in nominal terms, to its pre-crisis (2005) level. But housing wealth has moved to a different group of people—made up of people who are older and have higher credit scores than a decade ago. In today’s post, we look at the evolution of housing equity and its owners.

Continue reading "The Evolution of Home Equity Ownership" »

Posted by Blog Author at 7:00 AM in Household Finance, Housing, Inequality | Permalink | Comments (0)

February 13, 2017

How Resilient Is the U.S. Housing Market Now?



LSE_How Resilient Is the U.S. Housing Market Now?


Housing is by far the most important asset for most households, and, not coincidentally, housing debt dwarfs other household liabilities. The relationship between housing debt and housing values figures significantly in financial and macroeconomic stability, as events during the housing bust of 2006-12 clearly demonstrated. This week, Liberty Street Economics presents five posts touching on various aspects of housing, from the changing relationship between mortgage debt and housing equity to the future of homeownership. In today’s post, we provide estimates of housing equity and explore how vulnerable households are to declines in house prices, using methods introduced in our paper “Tracking and Stress Testing U.S. Household Leverage.”

Continue reading "How Resilient Is the U.S. Housing Market Now?" »

Posted by Blog Author at 7:00 AM in Financial Institutions, Household Finance, Macroecon | Permalink | Comments (1)

January 23, 2017

Measuring Americans’ Expectations Following the 2016 Election



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While consumer confidence as measured by various surveys has increased sharply since the national election, the New York Fed's Survey of Consumer Expectations (SCE) has shown little notable change in expectations. In this post, we show that the difference may partly reflect systematic compositional changes whereby respondents who answer a survey after the election differ in important ways from those answering the survey before the election—something which the SCE largely avoids. We also show that the flat average aggregate outlook in the SCE masks substantial regional/partisan heterogeneity in shifts in expectations.

Continue reading "Measuring Americans’ Expectations Following the 2016 Election" »

Posted by Blog Author at 7:00 AM in Expectations, Household Finance | Permalink | Comments (1)

November 30, 2016

Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies



Editor’s note: When this post was first published, the chart on loan originations contained an incorrect label; the chart and linked data file have been corrected. (December 1, 12:32 p.m.)

LSE_Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies

The latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data showed a small increase in overall debt in the third quarter of 2016, bolstered by gains in non-housing debt. Mortgage balances continue to grow at a sluggish pace since the recession while auto loan balances are growing steadily. The rise in auto loans has been fueled by high levels of originations across the spectrum of creditworthiness, including subprime loans, which are disproportionately originated by auto finance companies. Disaggregating delinquency rates by credit score reveals signs of distress for loans issued to subprime borrowers—those with a credit score under 620. In this post we take a deeper dive into the observed growth in auto loan originations and delinquencies. This analysis and our Quarterly Report are based on the New York Fed’s Consumer Credit Panel, a data set drawn from Equifax credit reports.

Continue reading "Just Released: Subprime Auto Debt Grows Despite Rising Delinquencies" »

Posted by Blog Author at 11:05 AM in Household Finance | Permalink | Comments (2)

November 18, 2016

Just Released: Press Briefing on the Survey of Consumer Expectations



LSE_Just Released: Press Briefing on the Survey of Consumer Expectations

The New York Fed’s Survey of Consumer Expectations (SCE) collects information on household heads’ economic expectations and behavior. In particular, the survey covers respondents’ views on how inflation, spending, credit access, and the housing and labor markets will evolve over time. The SCE yields important insights that inform our monetary policy decisions. This morning, President Dudley joined New York Fed economists to brief the press on the design of the SCE and the latest releases of survey results. President Dudley introduced the briefing by speaking about the benefits of measuring consumers’ expectations.

Continue reading "Just Released: Press Briefing on the Survey of Consumer Expectations" »

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