Karen M. Pence

Comment on "Financially Fragile Households: Evidence and Implications"

Karen M. Pence — Wed, 12 Oct 2011 16:08:07 PDT

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

Sean D. Campbell et al. — Sun, 19 Jun 2011 11:18:27 PDT

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.

Comment on "The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation"

Karen M. Pence — Fri, 25 Jun 2010 07:14:07 PDT

Subprime Mortgages: Where, What, and to Whom?

Christopher Mayer et al. — Wed, 16 Dec 2009 11:27:57 PST

We explore the types of data used to characterize risky subprime lending and consider the geographic dispersion of subprime lending. First, we describe the strengths and weaknesses of three different datasets on subprime mortgages using information from LoanPerformance, HUD, and HMDA. These datasets embody different definitions of subprime mortgages. We show that estimates of the number of subprime originations are somewhat sensitive to which types of mortgages are categorized as subprime. Second, we describe what parts of the country and what sorts of neighborhoods had more subprime originations in 2005, and how these patterns differed for purchase and refinance mortgages. Subprime originations appear to be heavily concentrated in fast-growing parts of the country with considerable new construction, such as Florida, California, Nevada, and the Washington DC area. These locations saw house prices rise at faster-than-average rates relative to their own history and relative to the rest of the country. However, this link between construction, house prices, and subprime lending is not universal, as other markets with high house price growth such as the Northeast did not see especially high rates of subprime usage. Subprime loans were also heavily concentrated in Zip codes with more residents in the moderate credit score category and more black and Hispanic residents. Areas with lower income and higher unemployment had more subprime lending, but these associations are smaller in magnitude.

The Rise in Mortgage Defaults

Christopher Mayer et al. — Wed, 16 Dec 2009 11:23:21 PST

Intergenerational Effects of Nonmarital and Early Childbearing

Robert Haveman et al. — Mon, 01 Oct 2007 10:48:52 PDT

Do youth non-marital childbearing choices reflect income and relationship expectations?

Barbara Wolfe et al. — Mon, 01 Oct 2007 10:44:30 PDT

We hypothesize that teen nonmarital birth events are influenced by adolescent girls' perceptions of the consequences of their choices. Two such consequences are explored: (1) a teen's expected future marriage and cohabitation relationships and (2) the present value of expected future income. We also measure the effects of the characteristics of the teen, her prior choices, her family, her neighborhood, and the social and economic environment in which she lives. The results, based on the Michigan Panel Study of Income Dynamics, suggest that teens place greater weight on the relationship consequences than the income consequences, but that both consequences influence their nonmarital birth choices.

Household Saving in the '90s: Evidence from Cross-section Wealth Surveys

John Sabelhaus et al. — Mon, 30 Jul 2007 07:16:02 PDT

This paper uses a series of cross-section surveys to measure how wealth accumulation and active saving rates varied across cohort-groups during the early and mid 1990s. Our estimated rates of saving and wealth change across cohorts show a somewhat more dramatic life-cycle pattern than found in previous studies, in part because we use a new technique, and in part because the cross-section wealth surveys we use oversample the wealthiest families whose behavior dominates aggregate changes. Adjusting the wealth-change rates for bequests and subtracting out the capital gains component of wealth change move the estimates in the direction of results from previous studies, but the biggest changes in that direction result from excluding the top of the wealth distribution in each year.

Recent Changes to a Measure of U.S. Household Debt Service

Karen E. Dynan et al. — Mon, 30 Jul 2007 06:48:10 PDT

Do Borrowers Know their Mortgage Terms?

Brian K. Bucks et al. — Mon, 30 Jul 2007 06:43:30 PDT

We assess whether borrowers know their mortgage terms by comparing the distributions of these variables in the household-reported Survey of Consumer Finances (SCF) to the distributions in lender-reported data. We also examine the characteristics of SCF respondents who report not knowing these contract terms. Although most borrowers seem to know basic mortgage terms, borrowers with adjustable-rate mortgages appear likely to underestimate or to not know how much their interest rates could change. Borrowers who could experience large payment changes if interest rates rose are more likely to report not knowing these contract terms. Difficulties with gathering and processing information appear to be a factor in borrowers’ lack of knowledge.

Nature or Nurture: Why do 401(k) Participants Save Differently than Other Workers?

Karen M. Pence — Fri, 27 Jul 2007 14:44:57 PDT

Participants in 401(k) plans are more likely than other workers to list “retirement” as their main reason for saving, to hold individual retirement accounts and to invest in the stock market. There are two possible reasons for these differences: (1) workers who like to save choose to participate in the program; or (2) 401(k) participation educates workers about investing. I disentangle these explanations using the 1983-1989 Survey of Consumer Finances panel.

These results have important implications for proposals to partially privatize the Social Security system. First, 401(k) participants are different from the work force as a whole: they have more income and education, and most importantly, a greater interest in saving for retirement. Extrapolating from their behavior to that of the workforce at large could be misleading. Second, the education provided by 401(k) participation appears to have only a modest effect on saving behavior, suggesting that this education alone may not fully address concerns about the savvy of American savers.

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

William G. Gale et al. — Fri, 27 Jul 2007 14:32:26 PDT

Foreclosing on Opportunity: State Laws and Mortgage Credit

Karen M. Pence — Tue, 06 Feb 2007 06:41:33 PST

Foreclosure laws govern the rights of borrowers and lenders when borrowers default on mortgages. In states with laws favoring the borrower, the supply of mortgage credit may decrease because lenders face higher costs. To investigate the laws' effects, I compare approved mortgage applications in census tracts that border each other but are located in different states. Using a regression-discontinuity design and semiparametric estimation methods, I find that loan sizes are 3% to 7% smaller in defualter-friendly states; this result suggest that defaulter-friendly laws impose matieral cost on borrowers at the time of loan origination.

The Role of Wealth Transformations: An Application to Estimating the Effect of Tax Incentives on Saving

Karen M. Pence — Tue, 06 Feb 2007 06:21:43 PST

Researchers may want to estimate the percentage change of a variable, such as household wealth or corporate profits, that takes on economically significant nonpositive values. Using the logarithmic transformation, however, requires discarding observations with nonpositive values. This paper describes a possible solution to this problem-the inverse hyperbolic sine transformation-and shows how to implement this transformation optimally in the case of median regression. As an illustration of the usefulness of this transformation, I revisit a specification sometimes used to estimate the effect of tax incentives on household saving.