Monetary policy transmission to residential investment : commentary

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary TransmissionMonetary policy ; Housing - Finance ; Mortgages

Commentary on two papers on the affordability of housing for young and poor families

Housing - Finance ; Income

Does location matter?

Wages

Understanding recent trends in house prices and homeownership: commentary

Housing ; Housing - Prices

Network Effects, Congestion Externalities, and Air Traffic Delays: Or Why All Delays Are Not Evil

We examine two factors that might explain the extent of air traffic delays in the United States: network benefits due to hubbing and congestion externalities. Airline hubs enable passengers to cross-connect to many destinations, thus creating network benefits that increase in the number of markets served from the hub. Delays are the equilibrium outcome of a hub airline equating high marginal benefits from hubbing with the marginal cost of delays. Congestion externalities are created when airlines do not consider that adding flights may lead to increased delays for other air carriers. In this case, delays represent a market failure. Using data on all domestic flights by major US carriers from 1988-2000, we find that delays are increasing in hubbing activity at an airport and decreasing in market concentration but the hubbing effect dominates empirically. In addition, most delays due to hubbing actually accrue to the hub carrier, primarily because the hub carrier clusters its flights in short spans of time in order to maximize passenger interconnections. Non hub flights at hub airports operate with minimal additional travel time by avoiding the congested peak connecting times of the hub carrier. These results suggest that an optimal congestion tax would have a relatively small impact on air traffic delays since hub carriers already internalize most of the costs of hubbing and a tax that did not take the network benefits of hubbing into account could reduce social welfare.

Loss Aversion and Seller Behavior: Evidence from the Housing Market

Data from downtown Boston in the 1990s show that loss aversion determines seller behavior in the housing market. Condominium owners subject to nominal losses 1) set higher asking prices of 25-35 percent of the difference between the property's expected selling price and their original purchase price; 2) attain higher selling prices of 3-18 percent of that difference; and 3) exhibit a much lower sale hazard than other sellers. The list price results are twice as large for owner-occupants as investors, but hold for both. These findings are consistent with prospect theory and help explain the positive price-volume correlation in real estate markets.

IDEF5 Ontology Description Capture Method: Concept Paper

The results of research towards an ontology capture method referred to as IDEF5 are presented. Viewed simply as the study of what exists in a domain, ontology is an activity that can be understood to be at work across the full range of human inquiry prompted by the persistent effort to understand the world in which it has found itself - and which it has helped to shape. In the contest of information management, ontology is the task of extracting the structure of a given engineering, manufacturing, business, or logistical domain and storing it in an usable representational medium. A key to effective integration is a system ontology that can be accessed and modified across domains and which captures common features of the overall system relevant to the goals of the disparate domains. If the focus is on information integration, then the strongest motivation for ontology comes from the need to support data sharing and function interoperability. In the correct architecture, an enterprise ontology base would allow th e construction of an integrated environment in which legacy systems appear to be open architecture integrated resources. If the focus is on system/software development, then support for the rapid acquisition of reliable systems is perhaps the strongest motivation for ontology. Finally, ontological analysis was demonstrated to be an effective first step in the construction of robust knowledge based systems

Agency Conflicts, Asset Substitution, and Securitization

Asset-backed securities represent one of the largest and fastest growing financial markets. Under securitization, agents perform functions (for fees) that would alternatively be performed by a vertically integrated lender with ownership of a whole loan. We examine how outsourcing impacts performance using data on 357 commercial mortgage-backed securities deals with over 46,000 individual loans. To alleviate agency conflicts in managing troubled loans, underwriters often sell the first-loss position to the special servicer, the party who is charged with handling delinquencies and defaults. When holding the first-loss position, special servicers appear to behave more efficiently, making fewer costly transfers of delinquent loans to special servicing, but liquidating a higher percentage of loans that are referred to special servicing. Special servicers are also more likely to own the first loss position in deals that require additional effort (deals with higher delinquencies). Market pricing reflects the existence of agency costs. Despite the apparent reduction of agency costs, the first-loss position is increasingly owned by a party other than the special servicer. We pose a number of explanations, including conflicts between junior and senior securities holders (the asset substitution problem) and risk aversion among special servicers. Consistent with asset substitution, we show that special servicers delay liquidation when they hold the first-loss position in deals with more severe delinquency problems.

Reverse mortgages and the liquidity of housing wealth

The article is organized as follows: Section I briefly describes the features of various types of reverse mortgages offered in the private and public sectors. Section II surveys the ~elevant literature that has focused on the savings patterns of the elderly and their demand for reverse mortgage products. Section III describes the sample of the elderly drawn from the Survey of Income and Program Participation (SIPP). Section IV analyzes the potential demand for reverse mortgages on the basis of age, fertility history, income, housing wealth, liquid wealth, and debt. Section V discusses the difficulties in developing an established market for reverse mortgages, including legal and regulatory barriers, as well as issues of appropriate pricing and risk. Section VI concludes the paper.Mortgages

Research accomplished at the Knowledge Based Systems Lab: IDEF3, version 1.0

An overview is presented of the foundations and content of the evolving IDEF3 process flow and object state description capture method. This method is currently in beta test. Ongoing efforts in the formulation of formal semantics models for descriptions captured in the outlined form and in the actual application of this method can be expected to cause an evolution in the method language. A language is described for the representation of process and object state centered system description. IDEF3 is a scenario driven process flow modeling methodology created specifically for these types of descriptive activities