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Working Paper
“Don’t Know What You Got Till It’s Gone”—The Community Reinvestment Act in a Changing Financial Landscape
Nakamura, Leonard I.; Ding, Lei (2020-02-20)
This study provides new evidence on the impact of the Community Reinvestment Act (CRA) on mortgage lending by taking advantage of an exogenous policy shock in 2014, which caused significant changes in neighborhoods’ CRA eligibility in the Philadelphia market. The loss of CRA coverage leads to an over 10 percent decrease in purchase originations by CRA-regulated lenders. While nondepository institutions replace approximately half, but not all, of the decreased lending, their increased market share was accompanied by a greater involvement in riskier and more costly FHA lending. This study ...
Working Papers , Paper 20-08

Journal Article
Recent developments in the credit card market and the financial obligations ratio
Johnson, Kathleen W. (2005-10)
This article argues that three important developments in the credit card market over the period account for most of the rise in credit card payments relative to income and played a strong role in the rise of the total financial obligations ratio (FOR). First, improvements in credit scoring technology and the advent of risk based pricing of credit card debt have increased the share of households particularly lower income households with a credit card. Second, in the 1990s, credit card interest rates began to vary with changes in broader market interest rates, which in turn led to an especially ...
Federal Reserve Bulletin , Volume 91 , Issue Aut

Report
Modigliani Meets Minsky: Inequality, Debt, and Financial Fragility in America, 1950-2016
Bartscher, Alina K.; Steins, Ulrike I.; Schularick, Moritz; Kuhn, Moritz (2020-05-01)
This paper studies the secular increase in U.S. household debt and its relation to growing income inequality and financial fragility. We exploit a new household-level data set that covers the joint distributions of debt, income, and wealth in the United States over the past seven decades. The data show that increased borrowing by middle-class families with low income growth played a central role in rising indebtedness. Debt-to-income ratios have risen most dramatically for households between the 50th and 90th percentiles of the income distribution. While their income growth was low, ...
Staff Reports , Paper 924

Working Paper
Has COVID Changed Consumer Payment Behavior?
Greene, Claire; Merry, Ellen A.; Stavins, Joanna (2021-10-01)
The COVID-19 pandemic has caused large changes in consumer spending, including how people make their payments. We use data from a nationally representative survey of U.S. consumers collected before COVID in 2018 and 2019 and during COVID in 2020 to analyze changes in consumer payment behavior during the pandemic. We find that compared with their payment behavior in 2019, consumers had shifted some of their purchases from in person to online by fall 2020, significantly lowered their use of cash for purchases, and shifted their person-to-person (P2P) payments away from paper (cash and checks). ...
Working Papers , Paper 21-12

Report
The role of technology in mortgage lending
Schnabl, Philipp; Vickery, James; Fuster, Andreas; Plosser, Matthew (2018-02-01)
Technology-based (?FinTech?) lenders increased their market share of U.S. mortgage lending from 2 percent to 8 percent from 2010 to 2016. Using market-wide, loan-level data on U.S. mortgage applications and originations, we show that FinTech lenders process mortgage applications about 20 percent faster than other lenders, even when controlling for detailed loan, borrower, and geographic observables. Faster processing does not come at the cost of higher defaults. FinTech lenders adjust supply more elastically than other lenders in response to exogenous mortgage demand shocks, thereby ...
Staff Reports , Paper 836

Discussion Paper
Not Just “Stimulus” Checks: The Marginal Propensity to Repay Debt
Koşar, Gizem; Melcangi, Davide; Pilossoph, Laura; Wiczer, David (2023-06-27)
Households frequently use stimulus checks to pay down existing debt. In this post, we discuss the empirical evidence on this marginal propensity to repay debt (MPRD), and we present new findings using the Survey of Consumer Expectations. We find that households with low net wealth-to-income ratios were more prone to use transfers from the CARES Act of March 2020 to pay down debt. We then show that standard models of consumption-saving behavior can be made consistent with these empirical findings if borrowers’ interest rates rise with debt. Our model suggests that fiscal policy may face a ...
Liberty Street Economics , Paper 20230627

Discussion Paper
Future Potential versus Past Performance: MPOWER Financing’s Innovation in Student Loan Underwriting
Herbst-Murphy, Susan (2016-09-20)
The Payment Cards Center hosted a February 2016 workshop featuring MPOWER Financing, a start-up public benefit corporation created to be a source of student loans for high-potential scholars who either do not qualify for federal aid or who face a gap between federal aid maximums and the full cost of their educations. MPOWER has taken a unique approach to loan underwriting that is based on future potential rather than past credit experience and has developed a scoring model that helps predict loan repayment for young adults who have yet to establish a credit history. This paper summarizes ...
Consumer Finance Institute discussion papers , Paper 16-2

Working Paper
Extended Loan Terms and Auto Loan Default Risk
Cordell, Lawrence R.; An, Xudong; Tang, Sharon (2020-05-20)
A salient feature of the $1.2 trillion auto-loan market is the extension of loan maturity terms in recentyears. Using a large, national sample of auto loans from the entire auto market, we find that the default rates on six- and seven-year loans are multiple times that of shorter five-year term loans. Most of the default risk difference is due to borrower risks associated with longer-term loans, as those longer-term auto borrowers are more credit and liquidity constrained. We also find borrowers’ loan-term choice to be endogenous and that the endogeneity bias is substantial in conventional ...
Working Papers , Paper 20-18

Discussion Paper
Inequality in U.S. Homeownership Rates by Race and Ethnicity
Haughwout, Andrew F.; Lee, Donghoon; Scally, Joelle; Van der Klaauw, Wilbert (2020-07-08)
Homeownership has historically been an important means for Americans to accumulate wealth—in fact, at more than $15 trillion, housing equity accounts for 16 percent of total U.S. household wealth. Consequently, the U.S. homeownership cycle has triggered large swings in Americans’ net worth over the past twenty-five years. However, the nature of those swings has varied significantly by race and ethnicity, with different demographic groups tracing distinct trajectories through the housing boom, the foreclosure crisis, and the subsequent recovery. Here, we look into the dynamics underlying ...
Liberty Street Economics , Paper 20200708a

Discussion Paper
Moving Out of a Flood Zone? That May Be Risky!
Blickle, Kristian S.; Engelman, Katherine; Linnemann, Theo; Santos, João A. C. (2023-04-20)
An often-overlooked aspect of flood-plain mapping is the fact that these maps designate stark boundaries, with households falling either inside or outside of areas designated as “flood zones.” Households inside flood zones must insure themselves against the possibility of disasters. However, costly insurance may have pushed lower-income households out of areas officially designated a flood risk and into physically adjacent areas. While not designated an official flood risk, Federal Emergency Management Agency (FEMA) and disaster data shows that these areas are still at considerable risk ...
Liberty Street Economics , Paper 20230420b

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