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Maybe Some People Shouldn’t Own (3) Homes

Christopher Foote (), Jaromir Nosal, Lara Loewenstein and Paul Willen
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Jaromir Nosal: Boston College
Lara Loewenstein: Federal Reserve Bank of Boston

No 922, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We study the impact on debt and default in the Great Recession of mortgage investors - individuals holding mortgages on multiple properties. These individuals have been identified by prior studies (Albanesi, DeGiorgi, Nosal (2017)) to have been a major driver of the aggregate behavior of debt and default. We use the Equifax Consumer Credit Panel to shed light on the mechanism behind that contribution in terms of the relation between the behavior of mortgage investors and the subsequent rise and fall in debt and explosion of defaults. To that end, we explore detailed geographical location information included in the CCP, as well as HMDA and CoreLogic. Some of the questions we address in the paper are: Was mortgage investor activity much more pronounced in states with liberal recourse regulations? Did increases in house prices lead or lag the rise of investor activity? Did mortgage investors foreclose on all their properties or just the investment properties - so was their default purely strategic? Was there significant misreporting of the status of the purchased investment property as non-investment -- and hence were these loans mispriced? Finally, do we see a rise in mortgage investor activity post-recession now that house prices rebounded to new high levels?

Date: 2018
New Economics Papers: this item is included in nep-ban and nep-ure
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