106 posts on "Credit"
May 15, 2023
The Great Pandemic Mortgage Refinance Boom
Total debt balances grew by $148 billion in the first quarter of 2023, a modest increase after 2022’s record growth. Mortgages, the largest form of household debt, grew by only $121 billion, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. The increase was tempered by a sharp reduction in both purchase and refinance mortgage originations. The pandemic boom in purchase originations was driven by many factors – low mortgage rates, strong household balance sheets, and an increased demand for housing. Homeowners who refinanced in 2020 and 2021 benefitted from historically low interest rates and will be enjoying low financing costs for decades to come. These “rate refinance” borrowers have lowered their monthly mortgage payments, improving their cash flow, while other “cash-out” borrowers extracted equity from their real estate assets, making more cash available for consumption. Here, we explore the refi boom of 2020-21–who refinanced, who took out cash, and how much potential consumption support these transactions provided. In this analysis, as well as the Quarterly Report, we use our Consumer Credit Panel (CCP), which is based on anonymized credit reports from Equifax.
February 27, 2023
Does the CRA Increase Household Access to Credit?
Congress passed the Community Reinvestment Act (CRA) in 1977 to encourage banks to meet the needs of borrowers in the areas in which they operate. In particular, the Act is focused on credit access to low- and moderate-income communities that had historically been subject to discriminatory practices like redlining.
Posted at 7:00 am in Banks, Credit, Equitable Growth, Inequality, Regulation | Permalink | Comments (2)
February 16, 2023
Younger Borrowers Are Struggling with Credit Card and Auto Loan Payments
Total debt balances grew by $394 billion in the fourth quarter of 2022, the largest nominal quarterly increase in twenty years, according to the latest Quarterly Report on Household Debt and Credit from the New York Fed’s Center for Microeconomic Data. Mortgage balances, the largest form of household debt, drove the increase with a gain […]
February 3, 2023
How the LIBOR Transition Affects the Supply of Revolving Credit
In the United States, most commercial and industrial (C&I) lending takes the form of revolving lines of credit, known as revolvers or credit lines. For decades, like other U.S. C&I loans, credit lines were typically indexed to the London Interbank Offered Rate (LIBOR). However, since 2022, the U.S. and other developed-market economies have transitioned from credit-sensitive reference rates such as LIBOR to new risk-free rates, including the Secured Overnight Financing Rate (SOFR). This post, based on a recent New York Fed Staff Report, explores how the provision of revolving credit is likely to change as a result of the transition to a new reference rate.
Posted at 7:00 am in Banks, Credit, Financial Institutions, Financial Intermediation, Regulation | Permalink | Comments (2)
December 2, 2022
Does Bank Monitoring Affect Loan Repayment?
Banks monitor borrowers after originating loans to reduce moral hazard and prevent loan losses. While monitoring represents an important activity of bank business, evidence on its effect on loan repayment is scant. In this post, which is based on our recent paper, we shed light on whether bank monitoring fosters loan repayment and to what extent it does so.
November 15, 2022
Balances Are on the Rise—So Who Is Taking on More Credit Card Debt?
Total household debt balances continued their upward climb in the third quarter of 2022 with an increase of $351 billion, the largest nominal quarterly increase since 2007. This rise was driven by a $282 billion increase in mortgage balances, according to the latest Quarterly Report on Household Debt & Credit from the New York Fed’s Center for Microeconomic Data. Mortgages, historically the largest form of household debt, now comprise 71 percent of outstanding household debt balances, up from 69 percent in the fourth quarter of 2019. An increase in credit card balances was also a boost to the total debt balances, with credit card balances up $38 billion from the previous quarter. On a year-over-year basis, this marked a 15 percent increase, the largest in more than twenty years. Here, we take a closer look at the variation in credit card trends for different demographics of borrowers using our Consumer Credit Panel (CCP), which is based on credit reports from Equifax.
September 26, 2022
Is China Running Out of Policy Space to Navigate Future Economic Challenges?
After making progress slowing the pace of debt accumulation prior to the pandemic, China saw its debt levels surge in 2020 as the government responded to the severe economic slowdown with credit-led stimulus. With China currently in the midst of another sharp decline in economic activity due to its property slump and zero-COVID strategy, Chinese authorities have responded again by pushing out credit to soften the downturn despite already high levels of debt on corporate, household, and government balance sheets. In this post, we revisit China’s debt buildup and consider the growing constraints on Chinese policymakers’ tools to navigate future economic challenges.
September 6, 2022
Small Business Recovery after Natural Disasters
The first post of this series found that small businesses owned by people of color are particularly vulnerable to natural disasters. In this post, we focus on the aftermath of disasters, and examine disparities in the ability of firms to reopen their businesses and access disaster relief. Our results indicate that Black-owned firms are more likely to remain closed for longer periods and face greater difficulties in obtaining the immediate relief needed to cope with a natural disaster.
How Do Natural Disasters Affect U.S. Small Business Owners?
Recent research has linked climate change and socioeconomic inequality (see here, here, and here). But what are the effects of climate change on small businesses, particularly those owned by people of color, which tend to be more resource-constrained and less resilient? In a series of two posts, we use the Federal Reserve’s Small Business Credit Survey (SBCS) to document small businesses’ experiences with natural disasters and how these experiences differ based on the race and ethnicity of business owners. This first post shows that small firms owned by people of color sustain losses from natural disasters at a disproportionately higher rate than other small businesses, and that these losses make up a larger portion of their total revenues. In the second post, we explore the ability of small firms to reopen and to obtain disaster relief funding in the aftermath of climate events.
July 11, 2022
Consumer Scores and Price Discrimination
Most American consumers likely are familiar with credit scores, as every lender in the United States uses them to evaluate credit risk. But the Customer Lifetime Value (CLV) that many firms use to target ads, prices, products, and service levels to individual consumers may be less familiar, or the Affluence Index that ranks households according to their spending power. These are just a few among a plethora of scores that have emerged recently, consequence of the abundant consumer data that can be gathered online. Such consumer scores use data on age, ethnicity, gender, household income, zip code, and purchases as inputs to create numbers that proxy for consumer characteristics or behaviors that are of interest to firms. Unlike traditional credit scores, however, these scores are not available to consumers. Can a consumer benefit from data collection even if the ensuing scores are eventually used “against” her, for instance, by enabling firms to set individualized prices? Would it help her to know her score? And how would firms try to counteract the consumer’s response?
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