Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance

Kim, You Suk; Lee, Dong‐Hoon; Scharlemann, Therese C.; Vickery, James

doi:10.2139/ssrn.4248290

Cited by 2 publications

(3 citation statements)

References 37 publications

(59 reference statements)

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“…The relationship found in Kim et al. (2022) and Cherry et al. (2021) could stem from similar pressures, or perhaps servicers with less liquidity were also less likely to invest in their servicing infrastructure.…”

Section: Introductionmentioning

confidence: 84%

“…Although the servicing advances did not prove, ultimately, to be a fundamental threat to the viability of the nonbank finance companies, Kim et al. (2022) found that borrowers’ ability to access forbearance during the pandemic was greater if their servicer was larger in size or, in the case of nonbank servicers, had more liquidity. Meanwhile, Cherry et al.…”

Section: Introductionmentioning

confidence: 99%

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Liquidity in the mortgage market: How does the COVID‐19 crisis compare with the global financial crisis?

Pence

2022

Real Estate Economics

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The liquidity strains that contributed to the meltdown of the mortgage market in the Global Financial Crisis (GFC) re‐emerged in the Coronavirus 2019 (COVID‐19) Crisis. Some of these strains were acute. For example, the dependence of mortgage real estate investment trusts (REITs) on short‐term funding amplified market disruption in March 2020. However, other liquidity pressures had only minor repercussions for the overall mortgage market because of reforms since the GFC, a heavy government presence, and strong house prices. The lackluster performance of the private‐label mortgage‐backed securities market provides a glimpse of how the market might have performed in the absence of the heavy government presence.

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Section: Introductionmentioning

confidence: 84%

Section: Introductionmentioning

confidence: 99%

Liquidity in the mortgage market: How does the COVID‐19 crisis compare with the global financial crisis?

Pence

2022

Real Estate Economics

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“…Nonbanks with insufficient liquidity and capital may be particularly prone to these behaviors because the cost of bankruptcy and lost franchise value is lower. Cherry et al ( 2021) and Kim et al (2022) show, for example, that borrowers with mortgages serviced by nonbanks, and especially nonbanks with less liquidity or capital, were less likely in 2020 to receive coronavirus disease 2019 (COVID-19)-related forbearance relief under the CARES Act, despite appearing to be eligible.…”

Section: Why Has Nonbank Market Share Increased Since the Global Fina...mentioning

confidence: 99%

Nonbanks and Mortgage Securitization

Kim

Pence

Stanton

et al. 2022

Annu. Rev. Financ. Econ.

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This article reviews the dramatic growth of nonbank mortgage lending after the Global Financial Crisis, especially to borrowers with lower credit scores, and the related importance of mortgage-backed securitization. Our literature review suggests that the existing theoretical and empirical work on securitization is more relevant to bank than to nonbank lenders, thus leaving outstanding questions as to why nonbank market shares have increased to their current levels and how best to structure nonbank oversight. To highlight key differences in the mortgage-lending incentives of banks and nonbanks, we build a simple theoretical model of bank versus nonbank mortgage lending and use it to generate and test empirical hypotheses. We find, in particular, that loans issued by nonbanks are more likely to prepay early than loans issued by banks, the difference not explainable by nonbank borrowers prepaying more rationally. Using regulatory filings from nonbanks that are typically unavailable to academic researchers, we examine the balance sheets and liquidity and capital positions of large Ginnie Mae nonbank servicers, which face and pose more risk in the current mortgage system. We find that on average these servicers have reasonable liquidity and capital positions relative to standard regulatory thresholds, particularly in 2022:Q1 after a few quarters of elevated profits. However, some large Ginnie Mae servicers appear to have inadequate capital, as gauged by risk-based capital measures. If defaults rise on a large scale, the liquidity and capital positions of these servicers may amplify the disruption in the mortgage and housing markets. Expected final online publication date for the Annual Review of Financial Economics, Volume 13 is November 2022. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Intermediation Frictions in Debt Relief: Evidence from CARES Act Forbearance

Cited by 2 publications

References 37 publications

Liquidity in the mortgage market: How does the COVID‐19 crisis compare with the global financial crisis?

Liquidity in the mortgage market: How does the COVID‐19 crisis compare with the global financial crisis?

Nonbanks and Mortgage Securitization

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