Subprime Foreclosures and the 2005 Bankruptcy Reform

Morgan, Donald P.; Iverson, Benjamin Charles; Botsch, Matthew J.

doi:10.2139/ssrn.2324428

Cited by 23 publications

(22 citation statements)

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“…1 Previous papers have addressed the impacts of the 2005 bankruptcy reform. Using state-year data, Morgan et al (2011) find that foreclosure rates among sub-prime (but not among prime) mortgages rose relatively more in high exemption states. They argue that as access to Chapter 7 bankruptcy became limited under the new law, less unsecured debt will be discharged in bankruptcy and hence borrowers are more likely to default on their mortgage loans.…”

Section: Introductionmentioning

confidence: 94%

“…However, as discussed in White (2008), most of the filers did not lose access to Chapter 7, as the sufficient condition to qualify for Chapter 7 is to have an income below the state median income and the median income of bankruptcy filers is half of the median household income. Moreover, based on the argument in Morgan et al (2011), one would expect to see more foreclosures only among high income borrowers as they were the only group whose access to Chapter 7 was limited due to the reform. This, however, is in sharp contrast to what Morgan et al (2011) find.…”

Section: Introductionmentioning

confidence: 99%

“…Moreover, based on the argument in Morgan et al (2011), one would expect to see more foreclosures only among high income borrowers as they were the only group whose access to Chapter 7 was limited due to the reform. This, however, is in sharp contrast to what Morgan et al (2011) find. Using a sample of mortgages from three months before to three months after the reform, Li et al (2011) find that the reform increased mortgage defaults but do not find a larger impact on high exemption states in their sample.…”

Section: Introductionmentioning

confidence: 99%

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Personal Bankruptcy Reform, Credit Availability, and Financial Distress

Boustanifar

2013

SSRN Journal

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Whether improving access to credit alleviates financial distress among households is the subject of intense debate. While it can mitigate financial hardship through the possibility of consumption smoothing, credit access may exacerbate distress among certain group of borrowers because of over-borrowing. Using the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), I investigate the impact of consumer credit availability on households' borrowing decisions and the subsequent effect on their financial well-being. Exploiting arguably exogenous cross-state variation in the generosity of bankruptcy law (exemption limits) prior to the Act, I find that households' access to credit increased significantly more in states with higher exemption limits, where lenders were more exposed to losses from bankruptcy filings. Households with low education and those with self-reported self-control problems responded aggressively by taking on large amounts of debt and spending it mainly on apparel and recreational activities. Consequently, households' distress, as measured by their inability to repay mortgage loans as well as a significant decline of food consumption, increased substantially more among low educated households and those with self-control problems. The paper highlights the real cost of credit availability for a subgroup of vulnerable borrowers.

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Section: Introductionmentioning

confidence: 94%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Personal Bankruptcy Reform, Credit Availability, and Financial Distress

Boustanifar

2013

SSRN Journal

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“…14 In addition to the tax benefits afforded to owner occupancy in the U.S., the rules of many other financial transactions favor owner-occupied housing, including exclusion of housing from personal bankruptcy proceedings, estate taxes and from the calculation of assets for programs such as Medicaid and student loans (Morgan et al 2012). While these preferences are also independent of the mortgage contract, their value increases with the size and value of the house, which, as described below, is likely increased by the deductibility of mortgage interest.…”

Section: The Demand For Owner-occupied Housingmentioning

confidence: 99%

How Mortgage Finance Affects the Urban Landscape

Chan

Haughwout

Tracy

2015

Handbook of Regional and Urban Economics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThis chapter considers the structure of mortgage finance in the U.S., and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans, and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent, and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, income, and over the lifecycle, with particular attention to the role of recent innovations such as non-prime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance. How Mortgage Finance Affects the Urban LandscapeOver 80 percent of Americans live in metropolitan areas, and housing is the dominant land use in cities. For many Americans, homeownership is an important goal, and a substantial majority of the population, including renters, believes that homeownership is a good way to improve their financial situation (Fannie Mae, 2013). For many owners, and for the great majority of renters, purchasing a home will mean obtaining a mortgage. For this reason, the availability and form of mortgages is an important determinant of the homeownership rate, which in turn affects the nature of the housing stock and the organization of residential activity within and across metropolitan areas.In this chapter, we consider the literature on mortgage finance in the U.S. and its role in shaping the urban landscape. The 2000s witnessed an enormous boom/bust cycle in the residential real estate market, followed by the sharpest contraction in the overall economy since the 1930s.These events, which are widely thought to have been driven at least in part by the mortgage market, had a pronounced spatial pattern ...

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“…These studies have sought explore the underlying causes of the subprime foreclosure crisis, from residential segregation within many of the nation's metropolitan areas (Rugh and Massey, 2010), the lack of alternatives to subprime lenders in predominantly minority communities (U.S. Dept. of Housing and Urban Development, 2000b), changes in home prices and home price volatility (Doms et al, 2007) and the inability to exclude the mortgage on a primary residence from protection following the passage of the Bankruptcy Reform Act of 2005 (Morgan et al, 2011).…”

Section: Review Of the Discrimination Literaturementioning

confidence: 99%

Who Defaults on their Home Mortgage?

Doviak

MacDonald

2012

SSRN Journal

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Like many previous studies, we find strong racial and ethnic disparities in lending practices, but we do not find conclusive evidence that HMDA-measurable forms of discrimination increased a borrower's probability of default. After controlling for other factors, we find that the interest rates charged to black and Latino borrowers tended to be higher than the ones charged to their white and non-Latino counterparts. This may be one reason why blacks and Latinos tend to default at a higher rate, but other factors, such as the tendency of black and Latino borrowers to take out larger loans than their white and non-Latino counterparts, may also have contributed to the higher default rate among black and Latino borrowers.

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Subprime Foreclosures and the 2005 Bankruptcy Reform

Cited by 23 publications

References 10 publications

Personal Bankruptcy Reform, Credit Availability, and Financial Distress

Personal Bankruptcy Reform, Credit Availability, and Financial Distress

How Mortgage Finance Affects the Urban Landscape

Who Defaults on their Home Mortgage?

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