Regulating Mortgage Leverage: Fire Sales, Foreclosure Spirals and Pecuniary Externalities

Zevelev, Albert A.

doi:10.2139/ssrn.2524764

“…This foreclosure will depress the prices of nearby homes (Campbell, Giglio and Pathak 2011;Anenberg and Kung 2014), making it more likely the neighbours will default. More generally, an increase in supply of homes in a given market through foreclosure will depress housing prices (Zevelev 2014 If there were a "monopoly" lender in the economy, however, this lender would be more prudent because this lender would be exposed to aggregate credit risk. If one household defaults, this lender knows it will depress the prices of neighbouring homes and increase the likelihood that they will default.…”

Section: Mortgage Finance With Externalitiesmentioning

confidence: 99%

“…This foreclosure will depress the prices of nearby homes (Anenberg and Kung, 2014;Campbell, Giglio and Pathak, 2011), making it more likely the neighbours will default. More generally, an increase in supply of homes in a given market through foreclosure will depress housing prices (Zevelev, 2014). Since no single lender lends to all homes in a market, individual lenders, especially if they are a small part of the market, will neglect these foreclosure externalities when making a mortgage contract.…”

Section: Mortgage Finance With Externalitiesmentioning

confidence: 99%

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The Market Structure of Securitisation and the US Housing Bubble

Wächter

¹

2014

Natl. Inst. econ. rev.

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Housing finance and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt. AbstractHousing finance, and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt.

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The Market Structure of Securitisation and the US Housing Bubble

Wächter

¹

2014

View full text Add to dashboard Cite

Housing finance and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt. AbstractHousing finance, and, specifically, the subprime private label securitisation market in the US, was at the epicentre of the global financial crisis. Excessive debt expansion in the run-up to the crisis resulted in credit risk, under-identified and mispriced ex ante, and in systemic risk. This paper considers the role of financial innovation in debt markets and the changing market structure of securitisation in the evolution of the US housing price bubble. New financing vehicles contributed to growing risk, but the more salient factor was the change in the structure of securitisation, which led to unsustainable levels of debt.

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How Do Foreclosures Exacerbate Housing Downturns?

Guren

¹

,

McQuade

²

2019

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We present a dynamic search model in which foreclosures exacerbate housing busts and delay the housing market's recovery. By raising the seller to buyer ratio and making buyers more selective, foreclosures freeze the market for nonforeclosures and reduce price and sales volume. Because negative equity is necessary for default, foreclosures can cause price-default spirals that amplify an initial shock. To quantitatively assess these channels, the model is calibrated to the recent bust. The estimated ampli…cation is signi…cant: foreclosures exacerbated aggregate price declines by 60 percent and non-foreclosure price declines by 24 percent. Furthermore, policies that slow foreclosures can be counterproductive.

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Regulating Mortgage Leverage: Fire Sales, Foreclosure Spirals and Pecuniary Externalities

Cited by 3 publications

References 87 publications

The Market Structure of Securitisation and the US Housing Bubble

The Market Structure of Securitisation and the US Housing Bubble

The Market Structure of Securitisation and the US Housing Bubble

How Do Foreclosures Exacerbate Housing Downturns?

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