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21 posts on "Mortgages"

August 24, 2015

Rethinking Mortgage Design

John Campbell, Andreas Fuster, David Lucca, Stijn Van Nieuwerburgh, and James Vickery

LSE_2015_mortgage-redesign_vickery_460a_art


Because mortgages make up the majority of household debt in most developed countries, mortgage design has important implications for macroeconomic policy and household welfare. As one example, most U.S. mortgages have fixed interest rates—if interest rates fall, existing borrowers need to refinance to lower their interest payments. In practice, households are often slow to refinance, or may not be able to do so. As a result, the transmission of U.S. monetary policy is dampened relative to countries like the United Kingdom where mortgage rates on most loans adjust automatically with short-term interest rates. In this post, we discuss some of the key takeaways from a recent conference where policymakers, academics, practitioners, and other experts convened to discuss mortgage design and consider possible mortgage market innovations.

Continue reading "Rethinking Mortgage Design" »

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

April 20, 2015

Credit Supply and the Housing Boom



LSE_2015_housing-boom-450


There is no consensus among economists as to what drove the rise of U.S. house prices and household debt in the period leading up to the recent financial crisis. In this post, we argue that the fundamental factor behind that boom was an increase in the supply of mortgage credit, which was brought about by securitization and shadow banking, along with a surge in capital inflows from abroad. This argument is based on the interpretation of four macroeconomic developments between 2000 and 2006 provided by a general equilibrium model of housing and credit.

Continue reading "Credit Supply and the Housing Boom" »

Posted by Blog Author at 7:00 AM in Macroecon, Mortgages | Permalink | Comments (5)

July 15, 2013

Improving Access to Refinancing Opportunities for Underwater Mortgages

Joshua Abel and Joseph Tracy

Since the onset of the housing crisis, a focus of policymakers has been to help underwater homeowners lower their monthly mortgage payments by refinancing, principally through the Home Affordable Refinance Program (HARP). This enables households to commit more money to consumption, debt reduction, and saving. Lower monthly payments also decrease the risk of mortgage defaults, allowing homeowners to stay in their homes and reducing expected losses for mortgage guarantors Fannie Mae and Freddie Mac, which remain under conservatorship of the Federal Housing Finance Agency. Stanching the flow of defaults also helps to firm up the housing market and, therefore, the economy as a whole. In this post, we examine some simple adjustments to HARP that would help to continue the program’s recent success and provide additional support to the housing market recovery—an undertaking that has added significance with the recent increase in mortgage rates, which could hamper refinancing activity moving forward.

Continue reading "Improving Access to Refinancing Opportunities for Underwater Mortgages" »

Posted by Blog Author at 7:00 AM in Housing, Mortgages | Permalink | Comments (4)

February 13, 2013

Underwater and Drowning? Some Facts about Mortgages that Could Be Targeted by Eminent Domain

Andreas Fuster, Caitlin Gorback, and Paul Willen

Since the onset of the subprime crisis, many places across the United States have been affected by high levels of negative equity (meaning that borrowers owe more on their mortgages than their homes are worth), an associated flood of foreclosures, and loss of local wealth. In mid-2012, a community advisory firm, Mortgage Resolution Partners (MRP) approached the government of San Bernardino County, California (a region with particularly high levels of negative equity) and pitched the idea of using eminent domain to seize privately securitized mortgage loans in order to restructure or refinance them. The MRP proposal was largely based on a plan by Cornell University law professor Robert Hockett. In late January, this controversial plan was abandoned by San Bernardino County, yet it remains under consideration in other counties. While a lot of the debate surrounding the plan has centered on value judgments and legal issues, in this post we look at available data in order to get an idea of the landscape of loans that could have been affected by such a program in San Bernardino County.

Continue reading "Underwater and Drowning? Some Facts about Mortgages that Could Be Targeted by Eminent Domain " »

Posted by Blog Author at 7:00 AM in Household Finance, Housing, Mortgages | Permalink | Comments (4)

September 24, 2012

How Much Can Refinancing Reduce the Risk of Mortgage Defaults?

Joshua Abel, Joseph Tracy, and Joshua Wright

Improving the ability of homeowners to take advantage of prevailing low mortgage rates by refinancing has remained an active topic of discussion. In a speech in January, New York Fed President Bill Dudley advocated for efforts “to see refinancing made more broadly available on a streamlined basis and with moderate fees to all prime conforming borrowers who are current on their payments.” In an earlier post, we argued that such a refinancing program would not represent a zero sum game between borrowers and investors; rather, it would yield net macroeconomic benefits.

Continue reading "How Much Can Refinancing Reduce the Risk of Mortgage Defaults?" »

Posted by Blog Author at 7:00 AM in Housing, Mortgages | Permalink | Comments (2)

August 29, 2012

Just Released: Has Household Deleveraging Continued?

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Today’s release of the 2012Q2 Quarterly Report on Household Debt and Credit indicates a continuation of the downward trend in household debt, which followed a long period of substantial increases. As of June 30, 2012, total outstanding household debt was down nearly $1.3 trillion since its peak in the third quarter of 2008. In the Liberty Street Economics blog’s inaugural post, we used the FRBNY Consumer Credit Panel to decompose this change in household indebtedness. Leading up to the crisis, households increased their cash holdings available for consumption by extracting equity from their homes, using home equity lines of credit and cash-out refinances, and by increasing their nonmortgage balances, such as credit card and auto loan balances. When the Great Recession struck, consumers reversed this behavior and began reducing rather than increasing these obligations. We demonstrated that although some of the reduction in household debt was due to charge-offs (the removal of obligations from consumers’ credit reports because of defaults), much of the debt reduction seen at the overall level was attributable to deleveraging: households actively borrowing less and paying down existing liabilities. In this post and accompanying interactive charts, we update our analysis, using the newly available 2010 and 2011 FRBNY Consumer Credit Panel data to determine whether those trends have continued.

Continue reading "Just Released: Has Household Deleveraging Continued?" »

Posted by Blog Author at 11:00 AM in Household Finance, Mortgages | Permalink | Comments (1)

July 06, 2012

Historical Echoes: The Creation of the Contemporary U.S. Mortgage

Megan Cohen, New York Fed Research Library

Residential mortgages, as they are known in the United States, are fairly modern creatures. Their origins lie in medieval England, but they have contemporary roots in the Great Depression.

Continue reading "Historical Echoes: The Creation of the Contemporary U.S. Mortgage" »

Posted by Blog Author at 7:00 AM in Historical Echoes, Mortgages | Permalink | Comments (0)

December 05, 2011

“Flip This House”: Investor Speculation and the Housing Bubble

Andrew Haughwout, Donghoon Lee, Joseph Tracy, and Wilbert van der Klaauw

The recent financial crisis—the worst in eighty years—had its origins in the enormous increase and subsequent collapse in housing prices during the 2000s. While the housing bubble has been the subject of intense public debate and research, no single answer has emerged to explain why prices rose so fast and fell so precipitously. In this post, we present new findings from our recent New York Fed study that uses unique data to suggest that real estate “investors”—borrowers who use financial leverage in the form of mortgage credit to purchase multiple residential properties—played a previously unrecognized, but very important, role. These investors likely helped push prices up during 2004-06; but when prices turned down in early 2006, they defaulted in large numbers and thereby contributed importantly to the intensity of the housing cycle’s downward leg.

Continue reading "“Flip This House”: Investor Speculation and the Housing Bubble" »

Posted by Blog Author at 7:00 AM in Credit, Household Finance, Housing, Mortgages | Permalink | Comments (20)

September 06, 2011

Helping Unemployed Borrowers Meet Their Mortgage Payments

James Orr and Joseph Tracy

With unemployment very high, income loss is now the primary reason for mortgage default. Unemployed homeowners face tough choices. Those with equity in their house may attempt to sell it quickly. Alternatively, to keep their house while seeking a new job, they might deplete their savings, apply for a loan modification, or use other credit. Those with negative equity—who owe more on the mortgage than the property’s current value—have fewer choices, because selling the house won’t pay off the mortgage. All too often the home enters foreclosure and becomes costly for the family and the community. In this post, we examine how states may be able to offer special bridge loans to help jobless homeowners pay their mortgages and help protect neighborhoods and housing markets. Such initiatives could complement existing programs by helping many distressed homeowners before they miss any payments.


Continue reading "Helping Unemployed Borrowers Meet Their Mortgage Payments " »

Posted by Blog Author at 10:00 AM in Foreclosure, Housing, Mortgages, Unemployment | Permalink | Comments (0)

May 11, 2011

Why Are Adjustable Rate Mortgages So Rare These Days?

James Vickery

The fraction of mortgage borrowers who choose an adjustable-rate loan has fallen significantly over the past five years or so. Although the fraction edged up slightly in 2010, it remains close to historic lows, with less than 10 percent of mortgage originations since 2009 featuring an adjustable interest rate. What explains the striking decline? And what are its implications for borrowers and policymakers?

Continue reading "Why Are Adjustable Rate Mortgages So Rare These Days?" »

Posted by Blog Author at 10:00 AM in Household Finance, Housing, Mortgages | Permalink | Comments (0)
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