Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults

Gupta, Arpit

doi:10.1111/jofi.12821

Cited by 101 publications

(44 citation statements)

References 41 publications

(41 reference statements)

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“…They show that nearby sellers lower their prices in the exact week that the foreclosed property is listed, thereby causing lower house prices for transactions. Gupta (2016) isolates exogenous variation in foreclosures using shocks to interest rates resulting from details in adjustable rate mortgage contracts. He finds that a foreclosure leads to further foreclosures and lower house prices in the surrounding area.…”

Section: Labor Market Frictionsmentioning

confidence: 99%

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Mian

Sufi

2018

SSRN Journal

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for comments that substantially improved the draft. We thank Michael Varley for excellent research assistance. We also thank the Julis Rabinowitz Center for Public Policy and Finance at Princeton and the Initiative on Global Markets and the Fama-Miller Center at Chicago Booth for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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Section: Labor Market Frictionsmentioning

confidence: 99%

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Mian

Sufi

2018

SSRN Journal

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“…In other approaches, Gupta (2016) isolates exogenous variation in foreclosures using shocks to interest rates resulting from details in adjustable rate mortgage contracts. He finds that a foreclosure leads to further foreclosures and lower house prices in the surrounding area.…”

Section: Foreclosures and A Fall In House Pricesmentioning

confidence: 99%

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Mian

Sufi

2018

Journal of Economic Perspectives

144

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What is the role of the financial sector in explaining business cycles? This question is as old as the field of macroeconomics, and an extensive body of research conducted since the Global Financial Crisis of 2008 has offered new answers. The specific idea put forward in this article is that expansions in credit supply, operating primarily through household demand, have been an important driver of business cycles. We call this the credit-driven household demand channel. While this channel helps explain the recent global recession, it also describes economic cycles in many countries over the past 40 years.

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“…Zhu and Pace (2015) find that a delay of three months increases the probability of default by 30%. The work by Mayer et al (2014) confirms that strategic considerations are an important factor determining households' default decisions, and that by Gupta (2016) and Goodstein et al (2017) find evidence of mortgage default spillovers not explained by changes in house prices or in credit supply. Using a quantitative model, Herkenhoff and Ohanian (2015) estimate that foreclosure delays added 25% to the delinquency rate during the crisis.…”

Section: Introductionmentioning

confidence: 59%

Credit Enforcement Cycles

Drozd¹,

Serrano-Padial²

2017

Working Paper (Federal Reserve Bank of Philadelphia)

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Empirical evidence suggests that widespread financial distress, by disrupting enforcement of credit contracts, can be self-propagatory and adversely affect the supply of credit. We propose a unifying theory that models the interplay between enforcement, borrower default decisions, and the provision of credit. The central tenets of our framework are the presence of capacity constrained enforcement and borrower heterogeneity. We show that, despite heterogeneity, borrowers tend to coordinate their default choices, leading to fragility and to credit rationing. Our model provides a rationale for the comovement of enforcement, default rates and credit seen in the data.

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Foreclosure Contagion and the Neighborhood Spillover Effects of Mortgage Defaults

Abstract: In this paper, I identify shocks to interest rates resulting from two administrative details in adjustable-rate mortgage contract terms: the choice of financial index and the choice of lookback period.

Cited by 101 publications

References 41 publications

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Finance and Business Cycles: The Credit-Driven Household Demand Channel

Credit Enforcement Cycles

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