Wachter, Susan M
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PublicationUnderpriced Default Spread Exacerbates Market Crashes(2006-10-09) Pavlov, Andrey; Mariano, Roberto S; Pavlov, Andrey; Wachter, Susan M; Tan, Augustine H.H; Wachter, Susan MIn this paper, we develop a specific observable symptom of a banking system that underprices the default spread in non-recourse asset-backed lending. Using three different data sets for 18 countries and property types, we find that, following a negative demand shock, the “underpricing” economies experience far deeper asset market crashes than economies in which the put option is correctly priced. Furthermore, only one of the countries in our sample continues to exhibit the underpricing symptom following a market crash. This indicates that market crashes have a cleansing effect and eliminate underpricing at least for a period of time. This makes investing in such markets safer following a negative demand shock. PublicationA New Coalescence in the Housing Finance Reform Debate?(2016-06-01) Wachter, Susan M; Wachter, Susan M; McCoy, Patricia AIn the wake of the stalled Johnson-Crapo bill, the overarching goal of housing finance reform continues to be the efficient provision of long-term fixed-rate mortgages to credit-worthy borrowers in all markets throughout the business cycle.This Issue Brief analyzes three newly-proposed plans for reforming the U.S. housing finance system: (1) a proposal from Jim Parrot et al. to merge Fannie Mae and Freddie Mac into a new government corporation; (2) Andrew Davidson’s proposal for mutual ownership of the GSEs by mortgage originators; and (3) an opposing plan from Mark Calabria, arguing against securitization altogether and for a return to the regime of originate-and-hold. PublicationThe Impacts of Borrowing Constraints on Homeownership(1989-10-01) Linneman, Peter D.; Wachter, Susan M.; Linneman, Peter D.; Wachter, Susan M.This paper utilizes micro data to directly quantify the impact of mortgage underwriting criteria on individual homeownership propensities. To determine whether a family is constrained by these criteria, the optimal home purchase price is estimated. The results indicate that wealth and income constraints both reduce homeownership propensities, with a stronger impact for wealth constraints. Mortgage market innovations of the early 1980s seem to have reduced these effects. The research indicates, however, that even in well-developed capital markets, the presence of borrowing constraints adversely affects homeownership propensities. PublicationThe American Mortgage in Historical and International Context(2005-09-21) Green, Richard K.; Wachter, Susan M.; Green, Richard K.; Wachter, Susan M.Home mortgages have loomed continually larger in the financial situation of American households. In 1949, mortgage debt was equal to 20 percent of total household income; by 1979, it had risen to 46 percent of income; by 2001, 73 percent of income (Bernstein, Boushey and Mishel, 2003). Similarly, mortgage debt was 15 percent of household assets in 1949, but rose to 28 percent of household assets by 1979 and 41 percent of household assets by 2001. This enormous growth of American home mortgages, as shown in Figure 1 (as a percentage of GDP), has been accompanied by a transformation in their form such that American mortgages are now distinctively different from mortgages in the rest of the world. In addition, the growth in mortgage debt outstanding in the United States has closely tracked the mortgage market’s increased reliance on securitization (Cho, 2004). The structure of the modern American mortgage has evolved over time. We begin by describing this historical evolution. The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down payments and short maturities. Before the Great Depression, homeowners typically renegotiated their loans every year. We next compare the form of U.S. home mortgages today with those in other countries. The U.S. mortgage provides many more options to borrowers than are commonly provided elsewhere: American homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can prepay freely; and they can generally borrow against home equity freely. They can also obtain home mortgages at attractive terms with very low down payments. We discuss the nature of the U.S. government intervention in home mortgage markets that has led to the specific choices available to American homebuyers. We believe that the unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy. PublicationCommunity Reinvestment and Credit Risk: Evidence from an Affordable-Home-Loan Program(1999) Wachter, Susan M.; Wachter, Susan M.This study examines the performance of home purchase loans originated by a major depository institution in Philadelphia under a flexible lending program between 1988 and 1994. We examine long-term delinquency in relation to neighborhood housing market conditions, borrower credit-history scores and other factors. We find that likelihood of delinquency declines with increasing neighborhood housing market activity. Also, likelihood of delinquency is greater for borrowers with low credit-history scores and those with high ratios of housing expense to income, and when the property is unusually expensive for the neighborhood where it is located. PublicationBorrowing Constraints and Homeownership(2016-05-01) Acolin, Arthur; Bricker, Jesse; Wachter, Susan M; Wachter, Susan MThis paper identifies the impact of borrowing constraints on homeownership in the U.S. in the aftermath of the 2008 financial crisis. While homeownership declines and tightened credit are evident, the role the tightening of credit has had on the probability of individual households to become homeowners has not been previously identified. The homeownership rate in 2010-2013 is estimated to be 2.3 percentage points lower than if the constraints were set at the 2001 level. PublicationThe Urban Water Transition: Why We Must Address the New Reality of Urbanization, Women, Water, and Sanitation in Sustainable Development(2017-10-03) Birch, Eugenie L; Meleis, Afaf; Wachter, Susan; Birch, Eugenie L; Meleis, Afaf; Wachter, Susan PublicationWhere the Homeless Come From: A Study of the Prior Address Distribution of Families Admitted to Public Shelters in New York City and Philadelphia(1996) Culhane, Dennis P.; Wachter, Susan M; Lee, Chang-Moo; Wachter, Susan MThis study investigates hypotheses regarding the association of census tract variables with the risk for homelessness. We used prior address information reported by families entering emergency shelters in two large U.S. cities to characterize the nature of that distribution. Three dense clusters of homeless origins were found in Philadelphia and three in New York City, accounting for 67 percent and 61 percent of shelter admissions and revealing that homeless families’ prior addresses are more highly concentrated than the poverty distribution in both cities. The rate of shelter admission is strongly and positively related to the concentration of poor, African-American, and female-headed households with young children in a neighborhood. It is also correlated with fewer youth, elderly, and immigrants. Such areas have higher rates of unemployment and labor force nonparticipation, more housing crowding, more abandonment, higher rates of vacancy, and higher rent-to-income ratios than other areas. PublicationThe Differential Impacts of Federally Assisted Housing Programs on Nearby Property Values: A Philadelphia Case Study(1999) Culhane, Dennis P.; Wachter, Susan M; Culhane, Dennis P.; Wachter, Susan MPrior research has found negative impacts of public housing on neighborhood quality. Few studies have examined the impact of public and other assisted housing programs on real estate prices, particularly differential impact by program type. In this study, federally assisted housing units by program type are aggregated by 1/8- or 1/4-mile radii around individual property sales and regressed on sales prices from 1989 through 1991, controlling for area demographic, housing, and amenity variables. Results show that public housing developments exert a modest negative impact on property values. Scattered-site public housing and units rented with Section 8 certificates and vouchers have slight negative impacts. Federal Housing Administration–assisted units, public housing homeownership program units, and Section 8 New Construction and Rehabilitation units have modest positive impacts. Low-Income Housing Tax Credit sites have a slight negative effect. Results suggest that homeownership programs and new construction/rehabilitation programs have a more positive impact on property values. PublicationNext Steps in the Housing Finance Reform Saga(2015-03-01) Wachter, Susan M; Wachter, Susan MMomentum seemed to be escalating in early 2014 for the passage of a comprehensive reform package of the housing finance system in the U.S., but that was not to be, as neither political party fully supported its passage, derailing the progress made over the previous few years. While consensus around the primary features of reform has grown, new research that questions these assumptions needs to be addressed and the inertia keeping the country mired in the current, uncertain system needs to be overcome. In this brief, we will discuss the progress made thus far en route to reform, analyze the disparate elements of the leading proposals, and incorporate new findings that will shape the additional research that must be done before policymakers can agree on the best path forward.