a b s t r a c tIn a recent paper, Leamer (2007) identified housing as an important precursor of the national business cycle. Previous work, on the other hand, has shown that regional cycles may not be synchronous with the aggregate cycle. In this paper, we analyze the relationship between housing and the business cycle at the MSA-level for a set of 51 US cities. We find that declines in house prices are often not followed by declines in that city's employment. While the growth rates in housing variables appeared to slow ahead of city-level peaks, we find no consistent statistical relationship suggesting a city's permits or prices influences its business cycle. In fact, we find that national permits are a better leading indicator for a city's employment than a city's own permits. This suggest the possibility that housing is merely a proxy for other consumption or wealth indicators.
a b s t r a c t JEL classification: G21 J15 R23 C11We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual-and neighborhood-level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the differences in subprime mortgage rates in terms of racial and ethnic groups and neighborhood characteristics. We find evidence of adverse pricing for Blacks and Hispanics. The evidence of adverse pricing is strongest for purchase mortgages and mortgages originated by non-depository institutions.
We analyze the entry of new credit rating agencies into structured finance products. Our setting is unique as we study a period in which the incumbents’ reputation was extremely poor and the benefit of more fee income from inflating ratings was low. We find entrants issue higher ratings than incumbents, particularly for interest-only tranches. Using measures of market share that are exogenous to incumbent ratings, we provide suggestive evidence that incumbent rating levels become more generous as entrant market share in a product type increases. We also exploit a feature of structured finance that identifies rating shopping and find that incumbent ratings increase in shopping. The online appendix is available at https://doi.org/10.1287/mnsc.2016.2604 . This paper was accepted by Gustavo Manso, finance.
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