107 posts on "Credit"
February 17, 2021
Mortgage Rates Decline and (Prime) Households Take Advantage
Today, the New York Fed’s Center for Microeconomic Data reported that household debt balances increased by $206 billion in the fourth quarter of 2020, marking a $414 billion increase since the end of 2019. But the COVID pandemic and ensuing recession have marked an end to the dynamics in household borrowing that have characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while mortgage and credit card balances grew more slowly. As the pandemic took hold, these dynamics were altered. One shift in 2020 was a larger bump up in mortgage balances. Mortgage balances grew by $182 billion, the biggest uptick since 2006, boosted by historically high volumes of originations. Here, we take a close look at the composition of mortgage originations, which neared $1.2 trillion in the fourth quarter of 2020, the highest single-quarter volume seen since our series begins in 2000. The Quarterly Report on Household Debt and Credit and this analysis are based on the New York Fed’s Consumer Credit Panel, which is itself based on anonymized Equifax credit data.
Posted at 11:00 am in Credit, Household Finance, Housing, Pandemic, Recession, Student Loans | Permalink
February 5, 2021
Up on Main Street
The Main Street Lending Program was the last of the facilities launched by the Fed and Treasury to support the flow of credit during the COVID-19 pandemic of 2020-21. The others primarily targeted Wall Street borrowers; Main Street was for smaller firms that rely more on banks for credit. It was a complicated program that worked by purchasing loans and sharing risk with lenders. Despite its delayed launch, Main Street purchased more debt than any other facility and was accelerating when it closed in January 2021. This post first locates Main Street in the constellation of COVID-19 credit programs, then looks in detail at its design and usage with an eye toward any future programs.
Posted at 7:00 am in Bank Capital, Banks, Central Bank, COVID-19 Facilities, Credit, Federal Reserve, Financial Institutions, Financial Intermediation, Financial Markets, Fiscal Policy, Monetary Policy, Pandemic | Permalink
December 22, 2020
How Does Zombie Credit Affect Inflation? Lessons from Europe
Even after the unprecedented stimulus by central banks in Europe following the global financial crisis, Europe’s economic growth and inflation have remained depressed, consistently undershooting projections. In a striking resemblance to Japan’s “lost decades,” the European economy has been recently characterized by persistently low interest rates and the provision of cheap bank credit to impaired firms, or “zombie credit.” In this post, based on a recent staff report, we propose a “zombie credit channel” that links the rise of zombie credit to dis-inflationary pressures.
December 1, 2020
The Costs of Corporate Debt Overhang Following the COVID‑19 Outbreak
Leading up to the COVID-19 outbreak, there were growing concerns about corporate sector indebtedness. High levels of borrowing may give rise to a “debt overhang” problem, particularly during downturns, whereby firms forego good investment opportunities because of an inability to raise additional funding. In this post, we show that firms with high levels of borrowing at the onset of the Great Recession underperformed in the following years, compared to similar—but less indebted—firms. These findings, together with early data on the revenue contractions following the COVID-19 outbreak, suggest that debt overhang during the COVID-recession could lead to an up to 10 percent decrease in growth for firms in industries most affected by the economic repercussions of the battle against the outbreak.
November 17, 2020
Following Borrowers through Forbearance
Today, the New York Fed’s Center for Microeconomic Data reported that total household debt balances increased slightly in the third quarter of 2020, according to the latest Quarterly Report on Household Debt and Credit. This increase marked a reversal from the modest decline in the second quarter of 2020, a downturn driven by a sharp contraction in credit card balances. In the third quarter, credit card balances declined again, even as consumer spending recovered somewhat; meanwhile, mortgage originations came in at a robust $1.049 trillion, the highest level since 2003. Many of the efforts to stabilize the economy in response to the COVID-19 crisis have focused on consumer balance sheets, both through direct cash transfers and through forbearances on federally backed debts. Here, we examine the uptake of forbearances on mortgage and auto loans and its impact on their delinquency status and the borrower’s credit score. This analysis, as well as the Quarterly Report on Household Debt and Credit, is based on anonymized Equifax credit report data.
October 21, 2020
Bank Capital, Loan Liquidity, and Credit Standards since the Global Financial Crisis
Did the 2007-09 financial crisis or the regulatory reforms that followed alter how banks change their underwriting standards over the course of the business cycle? We provide some simple, “narrative” evidence on that question by studying the reasons banks cite when they report a change in commercial credit standards in the Federal Reserve’s Senior Loan Officer Opinion Survey. We find that the economic outlook, risk tolerance, and other real factors generally drive standards more than financial factors such as bank capital and loan market liquidity. Those financial factors have mattered more since the crisis, however, and their importance increased further as post-crisis reforms were phased in in the middle of the following decade.
October 16, 2020
How Do Consumers Believe the Pandemic Will Affect the Economy and Their Households?
In this post we analyze consumer beliefs about the duration of the economic impact of the pandemic and present new evidence on their expected spending, income, debt delinquency, and employment outcomes, conditional on different scenarios for the future path of the pandemic. We find that between June and August respondents to the New York Fed Survey of Consumer Expectations (SCE) have grown less optimistic about the pandemic’s economic consequences ending in the near future and also about the likelihood of feeling comfortable in crowded places within the next three months. Although labor market expectations of respondents differ considerably across fairly extreme scenarios for the evolution of the COVID pandemic, the difference in other economic outcomes across scenarios appear relatively moderate on average. There is, however, substantial heterogeneity in these economic outcomes and some vulnerable groups (for example, lower income, non-white) appear considerably more exposed to the evolution of the pandemic.
Posted at 11:00 am in Credit, Expectations, Household Finance, Housing, Pandemic, Unemployment | Permalink
August 19, 2020
August 17, 2020
Are Financially Distressed Areas More Affected by COVID‑19?
Building upon our earlier Liberty Street Economics post, we continue to analyze the heterogeneity of COVID-19 incidence. We previously found that majority-minority areas, low-income areas, and areas with higher population density were more affected by COVID-19. The objective of this post is to understand any differences in COVID-19 incidence by areas of financial vulnerability. Are areas that are more financially distressed affected by COVID-19 to a greater extent than other areas? If so, this would not only further adversely affect the financial well-being of the individuals in these areas, but also the local economy. This post is the first in a three part-heterogeneity series looking at heterogeneity in the credit market as it pertains to COVID-19 incidence and CARES Act debt relief.
July 8, 2020
Who Has Been Evicted and Why?
More than two million American households are at risk of eviction every year. Evictions have been found to cause prolonged homelessness, worsened health conditions, and lack of credit access. During the COVID-19 outbreak, governments at all levels implemented eviction moratoriums to keep renters in their homes. As these moratoriums and enhanced income supports for unemployed workers come to an end, the possibility of a wave of evictions in the second half of the year is drawing increased attention. Despite the importance of evictions and related policies, very few economic studies have been done on this topic. With the exception of the Milwaukee Area Renters Study, evictions are rarely measured in economic surveys. To fill this gap, we conducted a novel national survey on evictions within the Housing Module of the Survey of Consumer Expectations (SCE) in 2019 and 2020. This post describes our findings.
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