Karen M. Pence

Foreclosing on Opportunity: State Laws and Mortgage Credit

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages. Many states protect borrowers by imposing restrictions on the foreclosure process; these restrictions, in turn, impose large costs on lenders. Lenders may respond to these higher costs by reducing loan supply; borrowers may respond to the protections imbedded in these laws by demanding larger mortgages. I examine empirically the effect of the laws on equilibrium loan size. I exploit the rich geographic information available in the 1994 and 1995 Home Mortgage Disclosure Act data to compare mortgage applications for properties located in census tracts that border each other, yet are located in different states. Using semiparametric estimation methods, I find that defaulter-friendly foreclosure laws are correlated with a four percent to six percent decrease in loan size. This result suggests that defaulter-friendly foreclosure laws impose costs on borrowers at the time of loan origination.

Do homeowners know their house values and mortgage terms

To assess whether homeowners know their house values and mortgage terms, we compare the distributions of these variables in the household-reported 2001 Survey of Consumer Finances (SCF) to the distributions in lender-reported data. We also examine the share of SCF respondents who report not knowing these variables. We find that most homeowners appear to report their house values and broad mortgage terms reasonably accurately. Some adjustable-rate mortgage borrowers, though, and especially those with below-median income, appear to underestimate or not know how much their interest rates could change.

401(K)S and Household Saving: New Evidence from the Survey of Consumer Finances

Although households have invested billions in 401(k) accounts, these balances may not be new saving if workers invest money that they would have saved in the programs absence. In this paper, I assess the effect of the 401(k) program on saving by comparing changes in the wealth of 401(k) eligible and ineligible households over the 1989-1998 period using data from the Survey of Consumer Finances (SCF). This comparison may yield misleading estimates of the effect of 401(k)s on saving if eligible households have a higher taste for saving than ineligible households or if they begin the 1989-1998 period with greater amounts of wealth. I adjust for these potential biases by constructing subjective measures of saving taste from questions on the SCF and by transforming the wealth measure with the inverse hyperbolic sine. Incorporating these adjustments suggests that 401(k)s have little to no effect on saving.

Are Successive Generations Getting Wealthier, and If So, Why? Evidence from the 1990s

This paper examines the wealth of successive birth cohorts in the United States using data from the 1989-2001 Surveys of Consumer Finances. We find that older households (those aged 55-64, 65-74 or 75-84) in 2001 had more wealth than households of similar age in 1989, but that the same was not true of younger households. We also find that changes in standard demographic characteristics (marital status, educational attainment, years in the labor force, and health status) can explain most of the divergent trends across age groups. Given the historically large capital gains that accrued during the 1990s, these results raise some intriguing questions about the nature of saving and wealth accumulation during that decade.

Securitization Markets and Central Banking: An Evaluation of the Term Asset-Backed Securities Loan Facility

In response to the near collapse of US securitization markets in 2008, the Federal Reserve created the Term Asset-Backed Securities Loan Facility, which offered non-recourse loans to finance investors’ purchases of certain highly rated asset-backed securities. We study the effects of this program and find that it lowered interest rate spreads for some categories of asset-backed securities but had little impact on the pricing of individual securities. These findings suggest that the program improved conditions in securitization markets but did not subsidize individual securities. We also find that the risk of loss to the US government was small.

Auto Sales and Credit Supply

Vehicle purchases fell by more than 20 percent during the 2007-09 recession, and auto loan originations fell by a third. We show that vehicle purchases typically account for an outsized share of the contraction in economic activity during a recession, in part because a concurrent tightening in auto lending conditions makes car purchases less affordable for many households. We explore the link between lending conditions and vehicle purchases with a novel gauge of credit supply conditions--household perceptions of vehicle financing conditions as measured on the Reuters/University of Michigan Survey of Consumers. In both a vector auto-regression estimated on aggregate data and a logit regression estimated on household-level data, this measure indicates that credit conditions are a significant influence on auto sales, as large as factors such as unemployment and income. Estimates from the household-level model show that the new car purchases of households that are more likely to depend on credit are particularly sensitive to assessments of financing conditions, and that households are a bit more likely to purchase vehicles when they expect interest rates to rise in the next year. The results contribute to the literature validating the usefulness of survey measures of household perceptions for forecasting macroeconomic activity.

How Much Are Car Purchases Driven by Home Equity Withdrawal? Evidence from Household Surveys

We use data from three nationally representative surveys to document that very few households report purchasing cars with home equity lines of credit or the proceeds from a cash-out refinancing. Households that do report using these sources of funds to purchase cars tend to be affluent and appear to have ample access to credit. These findings suggest that an easing of home-equity borrowing constraints was not the major factor driving any relationship between home prices and car sales during the housing boom in the 2000s. We discuss other mechanisms that might underlie this relationship.

Wealth, Pensions, Debt, and Savings: Considerations for a Panel Survey

Several U.S. panel surveys measure household wealth. At the same time, our understanding of many important aspects of household wealth accumulation remains incomplete. We argue that measurement error is one factor that limits the usefulness of the existing longitudinal surveys for research on wealth and savings. We review the features of wealth data that make it difficult to collect and assess which assets and debts households are more likely to report accurately. An examination of data from the Survey of Consumer Finances suggests that households find it particularly difficult to report the values of their pensions and businesses. We suggest several considerations in choosing between improving existing surveys and starting a new one.