Several provisions of the Tax Reform Act of 1986 had an indirect impact upon the demand for home mortgage debt. These include the elimination of the deductibility of interest on consumer credit, the increase in the standard deduction, and the reduction in the number of expenses that can be itemized. These provisions and the 1983–1989 panel sample of the Survey of Consumer Finances provide an opportunity to study the responsiveness of the demand for home mortgage debt to its tax status relative to the tax treatment of equity‐financed investments in housing and consumer credit. The results are strongly supportive of a highly elastic demand for mortgage debt with respect to its tax price. The best point estimate of this elasticity is –1, but substantial variation is found among certain groups. More generally, the results provide strong support for the phenomenon of portfolio reshuffling.

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We introduce some new independent variables to the standard prepayment-default modeling literature.The following subsection describes these novel independent variables. Discussion is separated into two groups; factors included into both equations, and factors contained only

We develop a Monte Carlo procedure to project MSA‐level house‐price paths from 2013 to 2023. These price paths are applied to a fixed portfolio of synthetic mortgages in order to estimate credit risk spreads (CRS) for each MSA. Like the well‐known annual percentage rate (APR)–which converts an array of fees into an all‐encompassing annual measure of costs to borrowers–the CRS is a holistic measure that encompasses both expected losses from default plus the cost of capital (or unexpected credit losses) needed to cover losses in a stress scenario. We find variation in the CRS across MSAs, with the range spanning 37 basis points. This range spans 86 basis points for those carrying first‐loss positions, such as private mortgage insurers. We conclude that, in order to accurately price credit risk, it is necessary to monitor more than borrower characteristics, but also local economic conditions.

This article examines liquidity constraints within the household k intertemporal model with nonseparable consumption and leisure. The model includes wage income in the minimum wealth constraint. We derive an estimable equation for employed households that holds whether or not the family is credit constrained. The formulation enables direct testing for liquidity constraints. Empirical findings using the Panel Study of Income Dynamics strongly support the existence of debt constraints. Credit constrained households have significantly lower levels of consumption, disposable income, saving, and wage rates, a higher average propensity to consume, and smaller labor hours for the spouse but not the head. (JEL D9 1,522)