Norbert Michel

Consumer Credit & the Housing Market: An Examination of Trends in Home Equity Lines of Credit

Any conversation regarding the current financial crisis must include a discussion of home prices. After dramatic home-price increases through the 1990’s and early 2000’s, U.S. home prices began a severe downturn during 2006. During this time period of significant price appreciation, as previous research has shown, consumers used the increased equity in their homes to finance additional consumption. A main financing vehicle for these types of purchases has been the home equity line of credit (HELOC). During the last recession, it is likely that the HELOC served as one of the only sources of additional financing for many homeowners due to job loss and/or maxed out forms of unsecured credit. Given the continued downward trend in home prices since late 2006, though, it is at least plausible that banks have been exposing themselves to greater risk than in previous recessions by continuing to fund additional HELOC lending. It is also possible that some of this added risk has been passed on to other institutions through the securitization of HELOC loans (just as with first mortgages). This paper examines trends in the HELOC segment of U.S. banks’ lending portfolios. Unlike the previous research cited, this paper examines the issue of HELOC lending solely from the bank side rather than the consumer side. The evidence suggests that much of the recent HELOC lending is, at best, no more secure than it was at the onset of the 2006 financial crisis.

Learner-instructor similarity: a social attribution approach to learning

Purpose – The purpose of this paper is to test a model in which instructor’s attributes (i.e. personality, age) are specified as social stimuli. Drawing on a constructivist view of learning (Palincsar, 1998) and similarity-attraction paradigm (Byrne, 1971), the authors hypothesize that instructor’s attributes influence learners’ reactions and dictate key attributions for learning: instructor’s competence and goodwill. The authors place these attributions as antecedents of learning results. Design/methodology/approach – In a quasi-experimental design, undergraduate business students (n=133) participated in a training program of managerial skills over a three-week period. Regression and path analyses were utilized in testing the hypothesized model. Findings – Results provide partial support to the hypothesized model and suggest that learning is a social event wherein learners’ attributions play a key role. Results also indicate that learner-instructor similarity in personality is an important antecedent of ...

Another look at the spending response to the 2001 income tax rebates

This article revisits the spending response to the 2001 US tax rebates by focussing on two key aspects of how tax policy researchers use the Consumer Expenditure Survey (CEX). These two attributes, which are often overlooked, are as follows: the measures used for consumption and the ‘outlier’ criteria applied to the data. First, I reproduce the results in Johnson et al. (2006), which (using the CEX) concluded that households immediately spent 20–40% of their rebates on nondurable consumption goods. Then, I show how making two changes – both of which are relied upon in the literature – affects their results. These adjustments reduce the estimated magnitude of the rebates impact by as much as 100%.

Home Equity Lines of Credit and the Unemployment Rate – What Does the Evidence Say?

A three-part explanation has emerged to explain the continued slow pace of the economic recovery. First, leading up to the 2006 financial crisis, consumers borrowed against their homes to finance purchases of consumer goods. Then, as the crisis unfolded, banks continued to lend to consumers even though home prices were falling. Finally, banks continued to lend as people lost their jobs. The recovery has been so meager, the story goes, because so many consumers have lost their main source of income and maxed-out their home equity borrowings. Thus, consumers have been forced to cut back on spending while banks are less able to continue lending. This paper argues that at least part of this story is purely anecdotal and, in fact, incorrect. In spite of the precipitous decline in home prices, the original price increases were so large that many homeowners still have adequate equity in their homes to borrow. The paper presents evidence that the average quarterly increase in aggregate HELOC lending after housing prices began their decline is, statistically, no different than the average quarterly increase in HELOC lending before housing prices began their downward trend. The evidence suggests that the increased HELOC lending during the recession is a continuation of a long-term trend that is not explained by higher unemployment during the recession.