Risky Borrowers or Risky Mortgages Disaggregating Effects Using Propensity Score Models

Ding, Lei; Quercia, Roberto G.; Li, Wei; Ratcliffe, Janneke

doi:10.1080/10835547.2011.12091305

Cited by 68 publications

(14 citation statements)

References 19 publications

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“…Mortgages originated through brokers or correspondents, as opposed to in-house origination, have a higher risk of default and are less likely to prepay. This finding is in line with prior literature that finds that third-party originated mortgages have a higher risk of default (Alexander et al, 2002;Ding et al, 2011;Jiang, Nelson, & Vytlacil, 2014;Moulton, 2010;Stegman et al, 2007). Loans with community seconds are associated with a 7 percent reduced risk of default and a 16 percent reduced risk of foreclosure, while those with other second liens are not significantly more or less likely to default or foreclose.…”

Section: Multinomial Logit Results Of Competing Riskssupporting

confidence: 90%

“…We estimate the loan performance of LMI first-time homebuyers in the Fannie Mae database, comparing the performance of HFA-originated mortgages to otherwise similar non-HFA mortgages. As is standard in the mortgage literature, we estimate the competing risks of prepayment and default using a multinomial logit specification (Ding et al, 2011;Pennington-Cross & Chomsisengphet, 2007). The data are constructed as a panel with each borrower-month constituting an observation.…”

Section: Methodsmentioning

confidence: 99%

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Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes

Hembre¹,

Moulton²,

Record³

2020

J Policy Anal Manage

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Between the late 1970s through 2013, state Housing Finance Agencies (HFAs) financed nearly $300 billion in mortgages to low‐ and moderate‐income first‐time homebuyers. Descriptive evidence indicates that HFAs help households retain their homes at higher rates than similar households purchasing homes in the private mortgage market. Using a matched sample of HFA originations between 2005 and 2014, we estimate a multinomial logit model of mortgage default (or foreclosure) and prepayment. We find that HFA borrowers are about 30 percent less likely to default or foreclose on their mortgages than otherwise similar non‐HFA borrowers. We find that 37 percent of this HFA effect can be explained by HFA origination and service delivery practices including direct servicing and homeownership counseling.

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Section: Multinomial Logit Results Of Competing Riskssupporting

confidence: 90%

Section: Methodsmentioning

confidence: 99%

Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes

Hembre¹,

Moulton²,

Record³

2020

J Policy Anal Manage

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“…The choice of caliper interval for matching involves a trade-off between the matching accuracy and the number of matched pairs that could be used for the study. Following Ding et al (2011), we select a caliper of 0.1 for our analysis.…”

Section: Matching Modified With Self-cured Loansmentioning

confidence: 99%

Redefault Risk in the Aftermath of the Mortgage Crisis: Why Did Modifications Improve More than Self-Cures?

Calem

Jagtiani

Maingi

2021

Journal of Real Estate Research

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This paper examines the redefault rate of mortgages that were selected for modification during 2008-2011, compared with that of similarly situated self-cured mortgages during the same period. We find that while the performance of both modified and self-cured loans improved dramatically over this period, the decline in the redefault rate for modified loans was substantially larger, and we attribute this difference to a few key factors. First, the repayment terms provided by modifications became increasingly generous, including the more frequent offering of principal reduction, resulting in greater financial relief to borrowers. Second, the later modifications also benefited from improving economic conditions -modification became more effective as unemployment rates declined and home prices recovered. Third, we find that the difference in redefault rate improvement between modified loans and self-cured loans is not fully explained by observable risk and economic variables. We attribute this residual difference to the servicers' learning process -so-called learning by doing. Early in the mortgage crisis, many servicers had limited experience selecting the best borrowers for modification. As modification activity increased, lenders became more adept at screening borrowers for modification eligibility and in selecting appropriate modification terms.

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“…In the US context especially, where the social safety-net has been weakened severely in recent decades, no segment of the mortgage market is likely to be immune from high default rates when property values fall by 30 to 50 per cent or more and unemployment increases rapidly. For example Ding et al (2010b) find that even conservatively underwritten home purchase loans that otherwise would have had low default rates experienced relatively high foreclosure rates when located in neighbourhoods with high concentrations of sub-prime loans. Sub-prime loans caused foreclosures that led to lower neighbourhood property values, which in turn caused greater defaults among all types of loan.…”

Section: Long-term Effects On Housing Financementioning

confidence: 99%

Critical Commentary. Sub-prime Crisis, Policy Response and Housing Market Restructuring

Immergluck¹

2011

Urban Studies

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Risky Borrowers or Risky Mortgages Disaggregating Effects Using Propensity Score Models

Cited by 68 publications

References 19 publications

Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes

Low‐Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes

Redefault Risk in the Aftermath of the Mortgage Crisis: Why Did Modifications Improve More than Self-Cures?

Critical Commentary. Sub-prime Crisis, Policy Response and Housing Market Restructuring

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