Credit Rationing, Income Exaggeration, and Adverse Selection in the Mortgage Market

Ambrose, Brent W.; Conklin, James; Yoshida, Jiro

doi:10.1111/jofi.12426

Cited by 70 publications

(29 citation statements)

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“…The previous result suggests that recent regulatory changes may have unintended consequences, resulting in less accessible credit for some borrowers and higher housing rents. Ambrose, Conklin and Yoshida (2016) present findings that point in the same direction. On the other hand, the tighter lending standards may also correct the excessively lax standards during the housing boom.…”

Section: Discussionsupporting

confidence: 70%

Mortgage Supply and Housing Rents

Gete

Reher

2018

The Review of Financial Studies

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We show that a contraction of mortgage supply after the Great Recession has increased housing rents. Our empirical strategy exploits heterogeneity in MSAs' exposure to regulatory shocks experienced by lenders over the 2010-2014 period. Tighter lending standards have increased demand for rental housing, leading to higher rents, depressed homeownership rates and an increase in rental supply. Absent the credit supply contraction, annual rent growth would have been 2.1 percentage points lower over 2010-2014 in MSAs in which lending standards rose from their 2008 levels.

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Section: Discussionsupporting

confidence: 70%

Mortgage Supply and Housing Rents

Gete

Reher

2018

The Review of Financial Studies

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“…Piskorski et al (2015) use New Century data to confirm that lenders were aware of second-lien misreporting by showing that 93.3% of New Century loans with unreported second liens had records of second liens in New Century's internal data. 12 Ambrose et al (2016) use New Century data to study income misreporting. Conklin et al (2020) use New Century data to study appraisal inflation.…”

Section: New Century Samplementioning

confidence: 99%

Collateral Misreporting in the Residential Mortgage-Backed Security Market

Kruger

Maturana

2021

Management Science

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Securitized mortgage appraisals routinely target pre-specified valuations, 45% of purchase loan appraisals exactly equal purchase prices, and appraisals virtually never fall below purchase prices. As a result, appraisals exceed automated valuation model (AVM) valuations 60% of the time and are 5% higher than AVM valuations on average. High appraisals and indicators of appraisal targeting predict loan delinquency and residential mortgage-backed security (RMBS) losses and are priced at the loan level through higher interest rates, but have essentially no impact on RMBS pricing. Selection bias simulations and unfunded loan application appraisals indicate that high appraisals are intentional. The extent to which appraisals exceed AVM valuations varies across loan officers, mortgage brokers, and appraisers, and high appraisals are associated with more repeat business for appraisers, potentially incentivizing appraisers to inflate their appraisals. This paper was accepted by Tomasz Piskorski, finance.

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“…According to Bernanke and Gertler (1995) it materialises as an external finance premium (the difference between the cost of external funds and the opportunity cost of internal funds), which reflects the cost associated with the agency dilemma. This problem persists particularly in the mortgage scheme which typically involves high uncertainty by its nature (Ambrose et al 2016).…”

Section: Credit Channelsmentioning

confidence: 99%

The Effects of Monetary Policy on House Prices in Spain: the role of the economic and monetary union membership in the housing bubble prior to the great recession

Pál

2018

CEREM

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Aim: This paper aims to discover the evolution of monetary transmission in Spain by focusing on the short-term interest rate, credit aggregates and house prices through different stages of economic development and European integration between 1975 and 2008. In addition, the analysis devotes special attention to the interval of the last housing boom, in order to reveal the importance of the interest rate policy of the ECB.Design / Research methods: The study applies a tri-variate autoregressive model assigned to three overlapping periods outlined by regime shifts in the Spanish economy. The estimation output determines the strength and persistency of the links between interest rates, credit aggregates and house prices. Consequently, the results of the econometric analysis provide proper base for comparison in order to identify the dominating channels of monetary transmissions through a prolonged period.Conclusions / findings: It is found that the transmission mechanism in Spain essentially altered over time since 1975. At the beginning of the full analysed interval the role of the credit channel was dominant, then its importance gradually diminished. After the EMU accession the traditional interest rate channel became the leading factor with an intensified and more persistent effect on house prices.Originality / value of the article: While there are numerous researches aimed at estimating the impact of monetary policy on the real economy, empirical studies focusing exclusively on the link between interest rate policy and house prices in Spain are still rare. As the present paper concentrates solely on the Spanish characteristics through extended interval, the study provides country-specific inferences.Implications of the research: Understanding the mechanism of the monetary policy effects on the housing sector is an essential aspect of designing policy interventions aimed at keeping house price development in check.Limitations of the research: Despite the significant results of the empirical analysis, the excessively dynamic increase in the property prices suggests that the factor of irrational expectations also played important role in the latest Spanish housing bubble.Key words: Monetary policy, VAR, ECB, Housing boom, Monetary transmission mechanismJEL: E52, E58.

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Credit Rationing, Income Exaggeration, and Adverse Selection in the Mortgage Market

Cited by 70 publications

References 50 publications

Mortgage Supply and Housing Rents

Mortgage Supply and Housing Rents

Collateral Misreporting in the Residential Mortgage-Backed Security Market

The Effects of Monetary Policy on House Prices in Spain: the role of the economic and monetary union membership in the housing bubble prior to the great recession

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