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Discussion of Papers: Ground Zero: Housing and the Mortgage Market - - PowerPoint PPT Presentation

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Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016) Discussion of Papers: Ground Zero: Housing and the Mortgage Market Paul S. Willen 3rd Annual Golub Center for Finance and Policy Conference MIT September 29, 2016

slide-1
SLIDE 1

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Discussion of Papers: Ground Zero: Housing and the Mortgage Market

Paul S. Willen 3rd Annual Golub Center for Finance and Policy Conference MIT September 29, 2016

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 1 / 11

slide-2
SLIDE 2

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-3
SLIDE 3

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-4
SLIDE 4

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-5
SLIDE 5

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-6
SLIDE 6

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-7
SLIDE 7

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Disclaimer

  • I am speaking today as a researcher and as a concerned citizen
  • not as a representative of:
  • The Boston Fed
  • or the Federal Reserve System
  • When I say “we”, I don’t mean Janet and me.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 2 / 11

slide-8
SLIDE 8

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Two different views

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 3 / 11

slide-9
SLIDE 9

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Two different views

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 3 / 11

slide-10
SLIDE 10

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-11
SLIDE 11

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-12
SLIDE 12

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-13
SLIDE 13

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-14
SLIDE 14

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-15
SLIDE 15

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-16
SLIDE 16

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-17
SLIDE 17

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-18
SLIDE 18

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-19
SLIDE 19

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score Relative Shift

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-20
SLIDE 20

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Why?

  • Securitization
  • Deregulation
  • Over-regulation
  • Optimistic HPA

Beliefs? Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score Relative Shift

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-21
SLIDE 21

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Explaining the boom

Why?

  • Securitization
  • Deregulation
  • Over-regulation
  • Optimistic HPA

Beliefs? Credit Expansion Constrained Low Income Low Credit Score Unconstrained High Income High Credit Score Relative Shift

  • Credit Expansion in early 2000s
  • Helped constrained borrowers
  • Marginal borrowers
  • Constrained borrowers
  • Drive up house prices (also relaxes

constraints)

  • Unconstrained borrowers?
  • Wealth effects?
  • Relative balance sheet shift in debt to

constrained

  • Old Question: Why credit expansion?
  • Revisit shift

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 4 / 11

slide-22
SLIDE 22

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Adelino, Schoar and Severino (2016)

  • Mian and Sufi (2009): “In fact, 2002 to 2005 is

the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated.”

  • Adelino et al (2016): Misinterpreted as showing

that low income people taking relatively bigger loans

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 5 / 11

slide-23
SLIDE 23

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Adelino, Schoar and Severino (2016)

  • Mian and Sufi (2009): “In fact, 2002 to 2005 is

the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated.”

  • Adelino et al (2016): Misinterpreted as showing

that low income people taking relatively bigger loans

–0.5 0.5 1 Mortgage credit growth correlation with household income growth 1991 1993 1995 1997 1999 2001 2003 2005

Year

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 5 / 11

slide-24
SLIDE 24

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Adelino, Schoar and Severino (2016)

  • Mian and Sufi (2009): “In fact, 2002 to 2005 is

the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated.”

  • Adelino et al (2016): Misinterpreted as showing

that low income people taking relatively bigger loans

–0.5 0.5 1 Mortgage credit growth correlation with household income growth 1991 1993 1995 1997 1999 2001 2003 2005

Year

  • 1
  • .5

.5 1 ln(Total Purchase $)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase $

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 5 / 11

slide-25
SLIDE 25

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Adelino, Schoar and Severino (2016)

  • Mian and Sufi (2009): “In fact, 2002 to 2005 is

the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated.”

  • Adelino et al (2016): Misinterpreted as showing

that low income people taking relatively bigger loans

–0.5 0.5 1 Mortgage credit growth correlation with household income growth 1991 1993 1995 1997 1999 2001 2003 2005

Year

  • 1
  • .5

.5 1 ln(Total Purchase $)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase $

  • 1
  • .5

.5 1 ln(Average Purchase $)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Average Purchase $

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 5 / 11

slide-26
SLIDE 26

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Adelino, Schoar and Severino (2016)

  • Mian and Sufi (2009): “In fact, 2002 to 2005 is

the only period in the past eighteen years in which income and mortgage credit growth are negatively correlated.”

  • Adelino et al (2016): Misinterpreted as showing

that low income people taking relatively bigger loans

–0.5 0.5 1 Mortgage credit growth correlation with household income growth 1991 1993 1995 1997 1999 2001 2003 2005

Year

  • 1
  • .5

.5 1 ln(Total Purchase $)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase $

  • 1
  • .5

.5 1 ln(Average Purchase $)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Average Purchase $

  • 1
  • .5

.5 1 ln(Total Purchase #)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase #

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 5 / 11

slide-27
SLIDE 27

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The extensive margin

  • Mian and Sufi (2016): More loans is credit

reallocation

  • Foote, Loewenstein and Willen (2016): Increase in
  • riginations in low income areas offset by increase

in terminations.

  • 1
  • .5

.5 1 ln(Total Purchase #)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase #

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 6 / 11

slide-28
SLIDE 28

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The extensive margin

  • Mian and Sufi (2016): More loans is credit

reallocation

  • Foote, Loewenstein and Willen (2016): Increase in
  • riginations in low income areas offset by increase

in terminations.

  • 1
  • .5

.5 1 ln(Total Purchase #)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase #

  • 1
  • .5

.5 1 Ln(Originations / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Originations

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 6 / 11

slide-29
SLIDE 29

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The extensive margin

  • Mian and Sufi (2016): More loans is credit

reallocation

  • Foote, Loewenstein and Willen (2016): Increase in
  • riginations in low income areas offset by increase

in terminations.

  • 1
  • .5

.5 1 ln(Total Purchase #)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase #

  • 1
  • .5

.5 1 Ln(Originations / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Originations

  • 1
  • .5

.5 1 Ln(Terminations / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Terminations

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 6 / 11

slide-30
SLIDE 30

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The extensive margin

  • Mian and Sufi (2016): More loans is credit

reallocation

  • Foote, Loewenstein and Willen (2016): Increase in
  • riginations in low income areas offset by increase

in terminations.

  • 1
  • .5

.5 1 ln(Total Purchase #)

  • 1
  • .5

.5 1 ln(Income)

2001 2006

Total Purchase #

  • 1
  • .5

.5 1 Ln(Originations / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Originations

  • 1
  • .5

.5 1 Ln(Terminations / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Terminations

  • 1
  • .5

.5 1 Ln(Stock of Debt / Returns)

  • 1
  • .5

.5 1 Ln(Income / Returns) year=2006 year=2002 Binned Scatterplot: Stock of Debt

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 6 / 11

slide-31
SLIDE 31

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-32
SLIDE 32

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-33
SLIDE 33

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

8Q lagged Equifax Riskscore

1 1.5 2 2.5 1 1.5 2 2.5 Ratio to 2001Q1 (3QMA) 2001 2003 2005 2007 2009

Quartile 1 (Lowest) Quartile 2 Quartile 3 Quartile 4 (Highest)

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-34
SLIDE 34

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

8Q lagged Equifax Riskscore

1 1.5 2 2.5 1 1.5 2 2.5 Ratio to 2001Q1 (3QMA) 2001 2003 2005 2007 2009

Quartile 1 (Lowest) Quartile 2 Quartile 3 Quartile 4 (Highest)

0.05 0.15 0.25 0.35 2 2 2 2 4 2 6 2 8 2 1

< 660 Between 660 and 780 780+

Panel A. United States

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-35
SLIDE 35

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

8Q lagged Equifax Riskscore

1 1.5 2 2.5 1 1.5 2 2.5 Ratio to 2001Q1 (3QMA) 2001 2003 2005 2007 2009

Quartile 1 (Lowest) Quartile 2 Quartile 3 Quartile 4 (Highest)

0.05 0.15 0.25 0.35 2 2 2 2 4 2 6 2 8 2 1

< 660 Between 660 and 780 780+

Panel A. United States

.02 .04 .06 .08 .1 .12 .14 .16 Hazard .02 .04 .06 .08 .1 .12 .14 .16 Hazard 2002 2004 2006 2008 2010 2012

1 2 3 4 5 (Highest Credit Scores)

Probability of Acquiring First Mortgage by Within CBSA Credit Score Quintile

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-36
SLIDE 36

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New Facts about the Cross Section of Debt in the Boom

  • Adelino et al (2016)

important in its own right

  • New research revising our

view of the boom.

  • Albanesi et al. (2016)
  • Bhutta and Keys

(2016)

  • Foote, Loewenstein

and Willen (2016)

  • No credit reallocation to

constrained borrowers.

8Q lagged Equifax Riskscore

1 1.5 2 2.5 1 1.5 2 2.5 Ratio to 2001Q1 (3QMA) 2001 2003 2005 2007 2009

Quartile 1 (Lowest) Quartile 2 Quartile 3 Quartile 4 (Highest)

0.05 0.15 0.25 0.35 2 2 2 2 4 2 6 2 8 2 1

< 660 Between 660 and 780 780+

Panel A. United States

.02 .04 .06 .08 .1 .12 .14 .16 Hazard .02 .04 .06 .08 .1 .12 .14 .16 Hazard 2002 2004 2006 2008 2010 2012

1 2 3 4 5 (Highest Credit Scores)

Probability of Acquiring First Mortgage by Within CBSA Credit Score Quintile 1,000 2,000 3,000 Amount of Debt (Bil.$) 1 2 3 4 5 Income per Return Quintile of ZIP Code Levels of Mortgage Debt (Equifax)

2001 2006

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 7 / 11

slide-37
SLIDE 37

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-38
SLIDE 38

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-39
SLIDE 39

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-40
SLIDE 40

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-41
SLIDE 41

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-42
SLIDE 42

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

1,000 2,000 3,000 Amount of Debt (Bil.$) 1 2 3 4 5 Income per Return Quintile of ZIP Code Levels of Mortgage Debt (Equifax)

2001 2006

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-43
SLIDE 43

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Greenwald (2016)

  • Key ingredient is a focus on the flow debt

constraint

  • Lots of empirical research now confirms that it is

the flow burden of debt that matters not the stock.

  • Ganong and Noel (2016) compare two policies
  • Cut monthly payment
  • Cut monthly payment and principal
  • Challenge is cross-sectional implications
  • Model implies a big shift in debt to constrained

1,000 2,000 3,000 Amount of Debt (Bil.$) 1 2 3 4 5 Income per Return Quintile of ZIP Code Levels of Mortgage Debt (Equifax)

2001 2006

2 4 6 Tril.$ 1 2 Borrower or Saver

Mortgage Debt (SCF)

2001 2007

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 8 / 11

slide-44
SLIDE 44

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income New view Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-45
SLIDE 45

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income High income New view Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-46
SLIDE 46

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-47
SLIDE 47

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Low income Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-48
SLIDE 48

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Low income High income Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-49
SLIDE 49

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Low income

+ Sub- prime

High income Counterfactual

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-50
SLIDE 50

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Low income

+ Sub- prime

High income Counterfactual Low income

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-51
SLIDE 51

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

New View of Credit Expansion

Debt growth Old view Low income

+ Sub- prime

High income New view Low income

+ Sub- prime

High income Counterfactual Low income High income

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 9 / 11

slide-52
SLIDE 52

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Policy Implications: Gete and Reher (2016)

  • Credit constraints view led to policy
  • Restrict credit to marginal borrowers!
  • Gete and Reher (2016): “Tighter mortgage

standards have increased demand for rental housing and led to higher rents, depressed homeownership rates, greater construction of multifamily housing, and lower rental vacancies.”

  • Given what we now know, is this an appropriate

response?

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 10 / 11

slide-53
SLIDE 53

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Policy Implications: Gete and Reher (2016)

  • Credit constraints view led to policy
  • Restrict credit to marginal borrowers!
  • Gete and Reher (2016): “Tighter mortgage

standards have increased demand for rental housing and led to higher rents, depressed homeownership rates, greater construction of multifamily housing, and lower rental vacancies.”

  • Given what we now know, is this an appropriate

response?

.02 .04 .06 .08 .1 .12 .14 .16 Hazard .02 .04 .06 .08 .1 .12 .14 .16 Hazard 2002 2004 2006 2008 2010 2012

1 2 3 4 5 (Highest Credit Scores)

Probability of Acquiring First Mortgage by Within CBSA Credit Score Quintile

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 10 / 11

slide-54
SLIDE 54

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Policy Implications: Gete and Reher (2016)

  • Credit constraints view led to policy
  • Restrict credit to marginal borrowers!
  • Gete and Reher (2016): “Tighter mortgage

standards have increased demand for rental housing and led to higher rents, depressed homeownership rates, greater construction of multifamily housing, and lower rental vacancies.”

  • Given what we now know, is this an appropriate

response?

.02 .04 .06 .08 .1 .12 .14 .16 Hazard .02 .04 .06 .08 .1 .12 .14 .16 Hazard 2002 2004 2006 2008 2010 2012

1 2 3 4 5 (Highest Credit Scores)

Probability of Acquiring First Mortgage by Within CBSA Credit Score Quintile

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 10 / 11

slide-55
SLIDE 55

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

Policy Implications: Gete and Reher (2016)

  • Credit constraints view led to policy
  • Restrict credit to marginal borrowers!
  • Gete and Reher (2016): “Tighter mortgage

standards have increased demand for rental housing and led to higher rents, depressed homeownership rates, greater construction of multifamily housing, and lower rental vacancies.”

  • Given what we now know, is this an appropriate

response?

.02 .04 .06 .08 .1 .12 .14 .16 Hazard .02 .04 .06 .08 .1 .12 .14 .16 Hazard 2002 2004 2006 2008 2010 2012

1 2 3 4 5 (Highest Credit Scores)

Probability of Acquiring First Mortgage by Within CBSA Credit Score Quintile

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 10 / 11

slide-56
SLIDE 56

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The slide you’ve all been waiting for...

  • The end.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 11 / 11

slide-57
SLIDE 57

Introduction Adelino et al. (2016) Greenwald (2016) Gete and Reher (2016)

The slide you’ve all been waiting for...

  • The end.

Willen (FRB Boston and NBER) Housing Discussion September 29, 2016 11 / 11