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Discussion Paper
Mobile payments in the United States at retail point of sale: current market and future prospects
Although mobile payments are increasingly used in some countries, they have not been adopted widely in the United States so far, despite their potential to add value for consumers and streamline the payments system. After describing a few countries? experiences, we analyze the prospects for the U.S. market for mobile payments in retail payments, particularly the use of contactless and near-field communication technologies. We identify conditions that have facilitated some success in other countries and barriers to the adoption of mobile payments in the United States. On the demand side, ...
Discussion Paper
Negative equity and foreclosure: theory and evidence
Millions of Americans have negative housing equity, meaning that the outstanding balance on their mortgage exceeds their home?s current market value. Our data show that the overwhelming majority of these households will not lose their homes. Our finding is consistent with historical evidence: we examine more than 100,000 homeowners in Massachusetts who had negative equity during the early 1990s and find that fewer than 10 percent of these owners eventually lost their home to foreclosure. This result is also, contrary to popular belief, completely consistent with economic theory, which ...
Discussion Paper
Reviving mortgage securitization: lessons from the Brady Plan and duration analysis
We review the period of the Latin American debt crisis in order to draw policy analogies from that experience for current U.S. credit securitization markets. During the earlier episode the Brady Plan used a zero-coupon U.S. Treasury security to provide a credit enhancement for the troubled assets. This revitalized the market for Latin American debt by: (1) ameliorating the dual solvency problem that affected both creditors and debtors, and (2) revealing asset prices as dominated by risk fundamentals rather than by short-run factors. The cost of the Brady plan was quite small relative to its ...
Discussion Paper
Wives' work and family income mobility
Over the past 30 years, married women in the United States have significantly increased their labor market activity and become an integral factor in their families? ongoing economic wellbeing. This change raises questions about the economic impact of two-earner families becoming the norm. Do American families now need both a working husband and a working wife to have any hope of getting ahead or to keep from falling behind? How much does a wife?s labor market activity (participation, hours, and earnings) matter in her family?s ability to make income gains, hold its place relative to other ...
Discussion Paper
Securitization and moral hazard: evidence from credit score cutoff rules
Mortgage originators use credit score cutoff rules to determine how carefully to screen loan applicants. Recent research has hypothesized that these cutoff rules result from a securitization rule of thumb. Under this theory, an observed jump in defaults at the cutoff would imply that securitization led to lax screening. We argue instead that originators adopted credit score cutoff rules in response to underwriting guidelines from Fannie Mae and Freddie Mac and offer a simple model that rationalizes such an origination rule of thumb. Under this alternative theory, jumps in default are not ...
Discussion Paper
The theory of life-cycle saving and investing
How much should a family save for retirement and for the kids? college education? How much insurance should they buy? How should they allocate their portfolio across different assets? What should a company choose as the default asset allocation for a mandatory retirement saving plan? We believe that the life-cycle model developed by economists over the last fifty years provides guidance for making such decisions. The theory teaches us to view financial assets as vehicles for transferring resources across different times and outcomes over the life cycle, and that perspective allows households ...
Discussion Paper
The 2009 survey of consumer payment choice
This paper presents results of the 2009 Survey of Consumer Payment Choice (SCPC), along with revised 2008 SCPC data. In 2009, the average U.S. consumer held 5.0 of the nine payment instruments available, including cash, and used 3.8 of them during a typical month. Between the 2008 and 2009 surveys, a period that includes the trough of the latest recession, consumers significantly increased their use of cash and close substitutes for cash, such as money orders and prepaid cards. At the same time, consumers reduced their use of credit cards and (to a lesser extent) debit cards, as well as ...
Discussion Paper
Eyes on the prize: how did the Fed respond to the stock market?
The appropriate role for equity prices in monetary policy deliberations has been hotly debated for some time. Recent work suggests that equity prices have affected monetary policy decisions above and beyond their indirect effect on the traditional goal variables of the FOMC. However, the correlation between stock price movements and these other goal variables has made the identification of the equity price effect problematic. Previous studies have used a forecast that embodies a different information set from the one used by the FOMC, which could bias the estimated coefficient on equity ...
Discussion Paper
A new approach to raising Social Security’s earliest eligibility age
While Social Security?s Normal Retirement Age (NRA) is increasing to 67, the Earliest Eligibility Age (EEA) remains at 62. Similar plans to increase the EEA raise concerns that they would create excessive hardship on workers who are worn-out or in bad health. One simple rule to increase the EEA is to tie an increase to the number of quarters of covered earnings. Such a provision would allow those with long work lives?presumably the less educated and lower paid?to quit earlier. We provide evidence that this simple rule would not satisfy the goal of preventing undue hardship on certain workers. ...
Discussion Paper
Reducing foreclosures
This paper takes a skeptical look at a leading argument about what is causing the foreclosure crisis and what should be done to stop it. We use an economic model to focus on two key decisions: the borrower?s choice to default on the mortgage and the lender?s choice on whether to renegotiate or ?modify? the loan. The theoretical model and econometric analysis illustrate that ?unaffordable? loans, defined as those with high mortgage payments relative to income at origination, are unlikely to be the main reason that borrowers decide to default. Rather, the typical problem appears to be a ...