Homeownership for the long run: an analysis of homeowner subsidies

This paper examines the impact of interest-rate and down-payment subsidies on default rates and losses given default, and finds that down-payment subsidies create successful homeowners at a lower cost than interest-rate subsidies.Mortgage loans ; Default (Finance) ; Housing - Finance

Covered bonds: a new way to fund residential mortgages

Like the now government-owned Fannie Mae and Freddie Mac, large investment banks helped create funds to finance new mortgages by issuing securities backed by pools of existing mortgages. But private firms have abandoned these instruments, and with them a large source of mortgage funds has disappeared. Four large investment banks plan to create a new U.S. market for an old instrument, hoping to bring liquidity back to the mortgage market.Mortgage loans ; Mortgage-backed securities

Legal systems and bank development

In some countries, banks are firms’ key source of financing. In others, firms look mainly to credit markets to meet their financial needs. Why should this be so? New research suggests that a country’s legal tradition strongly influences which financial system becomes dominant there.Banking law ; Finance

Prepayment penalties on subprime mortgages

As a result of the subprime mortgage mess, prepayment penalties are under close scrutiny. While these, like other kinds of contract terms, can be abused, there are good reasons for why they exist. In principle, they serve to extend credit to a greater number of borrowers.Mortgage loans ; Prepayment of debts

Foreclosures: relationship lending in the consumer market and its aftermath

Relationship lending theory suggests that lenders in close proximity to their borrowers might be the most efficient providers of screening and monitoring services, because the cost of collecting information declines with distance. The author presents evidence that ties bank branch presence to borrower performance in the low-income housing market, which provides support for this theory.Branch banks ; Mortgage loans

Financial system structure and economic development: structure matters

This paper investigates how the structure of a financial system-whether it is bank- or market-oriented-affects economic growth. In contrast to earlier research, which indicated that the financial system's structure is irrelevant for growth, the author finds that countries grow faster when they have a flexible judicial system and more market-oriented financial systems.Economic development ; Financial institutions

Homeowner subsidies

Though some programs that were created to promote homeownership in the United States, like Fannie Mae and Freddie Mac, have been harshly criticized in the wake of the housing crisis, we are likely to continue to provide some form of taxpayer-funded assistance to those who would become homeowners. Historically, assistance has taken the form of either interest rate or down-payment subsidies, but recent research suggests that down-payment subsidies are much more effective. They create successful homeowners—homeowners who keep their homes—at a lower cost.Housing subsidies ; Home ownership ; Housing policy

Dividends

In recent years, there has been increasing pressure on U.S. corporations to distribute earnings to shareholders in the form of dividends. This Commentary explains that dividends are important, but investors can err by reading too much into them.Dividends

Securitization

Obscure just 20 years ago, loan portfolio securitization by private and government-sponsored enterprises is a $5 trillion business today. This Commentary explains the reasons behind the spectacular growth of asset-backed securities.Asset-backed financing

Bank branch presence and access to credit in low-to-moderate income neighborhoods

Banks specialize in lending to informationally opaque borrowers by collecting soft information about them. Some researchers claim that this process requires a physical presence in the market to lower information collection costs. The author provides evidence in support of this argument in the mortgage market for low-income borrowers. Mortgage originations increase and interest spreads decline when there is a bank branch located in a low-to-moderate income neighborhood.Mortgage loans ; Branch banks