Originating lender localness and mortgage sustainability: an evaluation of delinquency and foreclosure in Indiana's mortgage revenue bond program

Originating lenders play a vital role in selecting and preparing borrowers for homeownership, directly and through partnerships with community entities. While previous research demonstrates the importance of originating lenders for mortgage access to low- and moderate-income borrowers, this analysis evaluates the influence of the originating lender, and in particular the localness of the lender, on mortgage sustainability (reduced delinquency and foreclosure). Employing data on more than 5,000 low- and moderate-income borrowers participating in Indiana's Mortgage Revenue Bond (MRB) program from 2004–2006, this analysis finds that the localness of the originating lender is significantly predictive of mortgage sustainability. After controlling for borrower, mortgage, and market characteristics, an increase in the localness of the lender is associated with a decrease in the probability of delinquency and foreclosure, particularly for higher risk (lower credit score) borrowers participating in the MRB program.     

The potential and limitations of mortgage innovation in fostering homeownership in the United States

Abstract

This article presents an empirical analysis of mortgage innovation as a vehicle to enable renters, especially those from traditionally underserved populations, to realize home‐ownership. It examines the financial and underwriting criteria of a typology of mortgage products, from those adhering to historical standards to some of today's most liberal loans, and develops synthetic models to account for all direct purchase costs. These models are calibrated using 1995 data on renter demographic and financial characteristics from the Survey of Income and Program Participation.

Compared with historical mortgages, today's more innovative loans increase the number of renters who could hypothetically qualify for homeownership by at least a million and expand potential home‐buying capacity by $300 billion. Certain policies could greatly expand the potential gains. Nevertheless, even the most aggressive innovations can play only a limited role in efforts to deliver the material benefits of homeownership to underserved populations.     

Turning everywhere,getting nowhere: experiences of seeking help for mortgage delinquency and their implications for foreclosure prevention

The growing literature on financial, demographic, and institutional aspects of the foreclosure crisis largely neglects the experiences and actions of homeowners. This in-depth account of homeowners' responses to mortgage delinquency and the success of the strategies they employ to prevent foreclosure is based on focus groups conducted in 2006 with low- and moderate-income homeowners, and nonprofit housing professionals in five US cities. The events precipitating mortgage delinquency often set off a cascade of trouble placing multiple demands on homeowners' financial, emotional, and social resources. Homeowners pursued foreclosure prevention assistance from a variety of sources including their lender, social welfare agencies, and nonprofit homeownership organizations, but encountered many obstacles to resolving mortgage delinquency. Their unsuccessful attempts to secure assistance contributed to financial and emotional strain and sometimes worsened prospects of preventing foreclosure. Despite the numerous federal policies developed to address the problem of foreclosure, the experiences described by participants in this study continue, indicating the need for more systematic, enforceable, and preventive policies to address foreclosures in the future.     

Policy incentives and the extension of mortgage credit: Increasing market discipline for subprime lending

The lax underwriting in non‐prime mortgage markets is widely perceived as one cause of the recent difficulties in the housing market. Policymakers are currently considering moves such as enforcing more careful underwriting to provide additional discipline to mortgage markets. This research explores the possibility of another approach to supplement or replace some of these efforts, namely the use of policy to create incentives for Fannie Mae and Freddie Mac (together, the GSEs) to help “check” behavior in non‐prime markets. The hypothesis is that the GSE Act affordable housing goals have increased GSE focus on targeted loan purchases, which in turn has led prime market lenders to compete more aggressively for borrowers on the margin between prime and subprime credit quality. As a consequence, these marginal borrowers will be more inclined to take prime mortgages rather than higher‐cost subprime loans. We test this hypothesis and find empirical support for it. We observe a negative relationship between the growth in GSE market share and the growth in subprime market share over time, and find that the impact of the GSEs on subprime lending tends to be stronger in high‐minority neighborhoods, where subprime lending has been concentrated and growing the fastest. Simulations show that a 10 percent increase in GSE market share (for example, from 20 to 22 percent) can cause 45,000 borrowers using prime instead of subprime loans a cost savings of about $1.7 billion. These results suggest that the GSEs, regardless of their postconservatorship form, should continue to devote attention to serving underserved populations and suggest that significant welfare benefits will accrue. © 2009 by the Association for Public Policy Analysis and Management.     

Asian Americans for equality: A case study of strategies for expanding immigrant homeownership

Abstract

At a time when the overall homeownership rate in the United States is at a historic high, many groups still face severe hurdles in realizing the American dream. The public, private, and nonprofit sectors are working to address these barriers, and this article examines one nonprofit's activities. Asian Americans for Equality (AAFE) is a civil rights and housing organization providing homeownership and other services to Asian Americans, a group that often faces language, cultural, credit, and financial difficulties in achieving homeownership.

AAFE addresses these challenges by providing aggressive outreach through housing fairs and neighborhood publications; it offers homeownership education and counseling in a variety of languages and settings, secures multiple housing subsidies and develops affordable housing, and educates lenders on the employment and credit practices of the Asian community. AAFE thus helps tailor the complex web of activities required to expand homeownership to traditionally underserved—especially immigrant—populations.     

Islands of decay in seas of renewal: Housing policy and the resurgence of gentrification

Abstract

For many observers, the recession of the early 1990s signaled the end of what Berry called islands of renewal in seas of decay. In the past decade, however, shifts in mortgage finance have intersected with developments in assisted housing to alter the links between gentrification and housing policy. In this article, we use field observation, Home Mortgage Disclosure Act data, and HOPE VI plans to analyze the resurgence of gentrification in eight U.S. cities.

Between 1992 and 1997, gentrified neighborhoods attracted conventional homepurchase mortgage capital at a rate that grew at more than 2.3 times the suburban rate. Logit models confirm that mortgage capital favors gentrified neighborhoods even after controlling for applicant and loan characteristics, suggesting a new relationship between mortgage lending and neighborhood change. In some cities, gentrification has surrounded islands of decay and poverty with landscapes of renewal     

The politics of mortgage credit expansion in the small coordinated market economies

Abstract

Recent contributions to the comparative political economy literature claim that liberal market economies are vulnerable to asset booms and busts because of financial deregulation, shrinking welfare states and a political ideology emphasising financial self-sufficiency. This article examines the rapid expansion of mortgage lending in three coordinated market economies (CMEs): Denmark, Sweden and the Netherlands. This expansion is puzzling given that all three countries are CMEs with generous welfare states. Yet the pattern of mortgage lending resembles the Anglo-Saxon or liberal market economies (LMEs) more than other CMEs. The article argues that mortgage bubbles in the small CMEs emerged as the unintended outcome of pairing neoliberal programmes to expand home ownership with collectivist housing institutions. This resulted in supply restrictions and rising property values which saddled households with extraordinarily high mortgage debts. In short, mortgage credit bubbles are not unique to Anglo-liberal welfare states and may have different origins.     

Hu Jintao and the CCP’s ideology: A historical perspective

The role of ideology in Chinese politics has experienced dramatic changes in the past six decades. Mao Zedong had tremendous power over the political institutions of the Chinese Communist Party (CCP). During the Cultural Revolution, he mobilized the masses against the Party’s institutions in the name of Mao Zedong Thought. Deng Xiaoping significantly downplayed the role of ideology in politics by trying to avoid theoretical debates. Jiang Zemin invented a new thought, “Three Represents,” yet the thought was detached from his name when it was enshrined in the CCP Constitution. Most recently, as a result of the political succession at the Sixteenth National Congress of the CCP, Jiang is no longer the most authoritative interpreter of the thought. Now it is Hu Jintao, new General Secretary of the CCP, who has become the official interpreter of the thought. He offered a new interpretation in his July 1^st speech on the “Three Represents” in 2003. It seems that ideology is no longer a personal trademark. It has become an asset of the Party and been institutionalized under Hu Jintao because Hu has become the legitimate interpreter of the Party’s ideology as the General Secretary of the Party. He will be the inaugural Joe and Teresa Long Endowed Chair in the Social Sciences at Tarleton State University in Stephenville, Texas in the Spring Semester of 2005. He received his Ph.D. in political science from the University of Chicago. He is the author ofChinese Provincial Leaders: Economic Performance and Political Mobility since 1949 (Sharpe, 2002). The author wishes to thank three anonymous referees for their valuable comments on the earlier drafts of this article, Stephine Corso, Nancy Hearst, and Fong Ruey-Jay for their research assistance, and Jessica Loon and Stephine Corso for their editorial assistance.     

The impact of predatory loan terms on subprime foreclosures: The special case of prepayment penalties and balloon payments

Previous research has shown that housing abandonment contributes to neighborhood decline by depressing nearby property values. However, most past research estimated the impact of abandonment through cross-sectional analysis without controlling for nearby foreclosures or local housing market trends. Therefore, it remains unclear whether abandoned properties reduce nearby property values or whether abandonment is more common in areas with already lower-valued properties. Prior research also has not explored how the duration of abandonment influences nearby property values. Therefore, to extend the current level of understanding of the impact of abandonment, this research examines the impact of abandoned properties on nearby property values in Baltimore, Maryland, from 1991 to 2010 using longitudinal data sets while simultaneously controlling for both nearby foreclosures and local housing market trends. This research finds that as properties are abandoned for longer periods of time, the impact on nearby property values not only increases in magnitude but also is seen increasingly farther away.     

Vote-seeking incentives and investment environments: The need for credit claiming and the provision of protectionism

Incentives to cultivate a personal reputation encourage legislators to generate policy outcomes for which they can claim credit. We show that these incentives make themselves felt in international agreements – a domain that might typically be considered within the purview of the executive branch. Through a cross-national analysis and brief case studies, we show that countries with electoral systems that encourage personal vote seeking are more likely to negotiate exceptions to treaties meant to liberalize their investment environments. Legislators benefit by being able to claim credit for having protected their constituents from the competition an unrestricted agreement would entail.     

China’s consumer credit sector expansion and monetary transmission mechanism: What should China’s central bank do?

In this paper, we argue that as China’s consumer credit sector is expanding, the central bank’s role in smoothing economic fluctuation and promoting economic growth becomes more important. We build a general equilibrium model with durable and nondurable goods to analyze how the consumer credit sector affects the transmission mechanism of monetary policy. The model finds that an expanding consumer credit sector improves the efficiency of the monetary transmission mechanism. Two policy implications derived suggest China’s central bank should encourage the development of the consumer credit sector and liberalize market-based monetary policy tools such as interest rate tools. Her fields of interest are international economics, monetary policies and economic growth. Guofeng Sun is the deputy director of open market operation office of monetary policy department at People’s Bank of China. His research focus is the transmission mechanism of monetary policy. The authors thank two anonymous referees for their helpful comments and suggestions. The views in this paper are solely the responsibility of the authors and should not be interpreted as reflecting the views of the People’s Bank of China.     

Pre-electoral coalitions in comparative perspective: A test of existing hypotheses

Despite the vast coalition literature, pre-electoral coalitions have never been at the center of any systematic, cross-national research. Given their prevalence and potential impact on government composition and policies, this represents a serious omission in our knowledge of coalitions. I begin to remedy this situation by testing two hypotheses found in the literature on party coalitions. The first is that pre-electoral coalitions are more likely to form in disproportional systems if there are a sufficiently large number of parties. The second is that pre-electoral coalitions are more likely to form if voters face high uncertainty about the identity of future governments. These hypotheses are tested using a new dataset comprising legislative elections in 22 advanced industrialized countries between 1946 and 1998. The results of the statistical analysis support the first hypothesis, but not the second.     

The problem of regulatory arbitrage: A transaction cost economics perspective

Regulatory arbitrage, or the ability of financial firms to circumvent or neutralize rules, is a classic problem of financial regulation. This article draws on transaction cost economics (TCE) to reformulate this old problem, thus defining regulatory arbitrage as a contracting hazard arising from interactions between the regulator and regulated firms, given bounded rationality and opportunism. Following standard TCE, the article first characterizes the implicit regulatory contract in finance, focusing in particular on the mobile and elastic nature of regulated actors and financial assets as well as the contested utility of financial innovation. It is then argued that this incomplete and hazard-prone regulatory bargain must be matched with a governance structure that both adapts to unforeseen circumstances and avoidance strategies and copes with radical uncertainty about the welfare consequences of financial innovation. To that end, the article discusses how a governance structure here termed “relational regulation” might facilitate such ex post governance under uncertainty.     

Policy Change and Industry Associability: The Australian Mining Sector

In this paper we use evidence from the recent trajectories of mining industry associations in the Australian federation to argue for the significance of institutional explanations for the formation and maintenance of interest groups. We argue that the recent lack of consultation by the Commonwealth government with the Minerals Council of Australia over resources rent taxation proposals reflected a weakness that resulted from the shifting basis of associability stemming from institutional changes.     

The evolution of consciousness: identity and personality in historical perspective

The development of language in human evolution made possible complex social relations. This development led to cultural diversity rather than to uniformity. An important part of such diversity is different ways of constructing and specifying persons as social agents. ‘Consciousness’ is defined as the capacity to construct and narrate courses of action. Different forms of personality, therefore, affect capacities for action. The paper considers such capacities by examining circumstances in which hitherto alien cultures and societies clash. It concentrates on the example of the Spanish conquest of Mexico in the early sixteenth century, and argues that cultural differences and different modes of construction of persons as social actors were a major factor in facilitating the conquest. It is neither concerned to defend the Conquistadoresnor to claim that greater praxeologial effectiveness conferred on their actions superior moral worth, quite the contrary. The Spanish conquest is used to illustrate the phenomenon of distinct societies modes of specifying persons through and as culture.     

How the City of London lost at Brexit: a historical perspective

The nature of the City of London as an offshore financial centre has long made London dependent on the British state providing protection from external political regulation, even as London’s foreign currency business separated its interests from British governments’ economic policy preoccupations. Since the 2008 crash and the onset of the eurozone crisis, London has faced threats to both its autonomy from external regulatory demands and to its offshore business interests at the same time as the long-standing external statecraft of British governments around EU membership has broken down. The Cameron governments’ efforts to protect the City within the European Union under political conditions that were transformed by the eurozone crisis exposed the limits of Britain’s position as a member of the European Union. When David Cameron then tried to resolve the problem of EU membership through a referendum he made it extremely difficult to defend the City’s broader commercial interests in the Single European Market because freedom of movement issues weighed significantly more in British domestic politics than financial services.     

Pretexts and US foreign policy: the war on terrorism in historical perspective

This article analyzes the way that US foreign policy élites have used pretexts to manage public opinion. Policymakers, it is argued, often seize upon threatening external events, and use these events to create a favorable political climate in which to “sell” policies of militarization and external expansion to the public. The article argues that the Bush administration has used the threat of terrorism as a pretext to implement a wide range of policies that had been decided upon in advance of the 9/11 attacks. It also argues that the recent uses of pretexts by the Bush administration have strong historical precedents: extended case studies of pretexts are presented for the events surrounding the Korea crisis of 1950 and the Afghanistan crisis of 1979–1980, as well as the more recent War on Terrorism.     

The political rationalities of regionalism: APEC and the EU in comparative perspective

Abstract

The essay is a comparative analysis of APEC and the EU, which looks at the particular sorts of economic orders these institutions are helping to create. It is argued that the two regions display some noteworthy differences that result from different approaches to the problem of economic governance. These differences reflect much more than the relative degree and level of regional institutionalization; they flow from different ‘political rationalities’ that are themselves a function of the very different liberal and illiberal polities in Europe and East Asia. Our key theoretical innovation is to use the framework of political rationality to explain different regional approaches to economic governance; more specifically we argue that the EU and the East Asian members of APEC may be understood as respectively subscribing to broadly conceived liberal and cameralist approaches to economic governance which are in turn reflected in the design of regional institutions.     

The contractual nature of budgeting: A transaction cost perspective on the design of budgeting institutions

Viewing budgets as contracts, transaction cost theory focuses on the costs of negotiating and enforcing the myriad political agreements by which policymakers allocate the government's resources. This essay provides an overview of transaction cost theory and its implications for the design of budgeting institutions. It contrasts the behavioral premises (bounded rationality and opportunism) of the transaction cost approach with those of more traditional budgetary theories, and examines whether commitment and agency costs have structured budget actors' institutional choices. Investigation of the usage of key budget instruments- entitlements, multi-year appropriations, and tax expenditures - suggests that Congress has been more discriminating in its institutional choices than is commonly supposed. Sensitivity to the importance of transaction costs would increase the effectiveness of budget reforms.     

Long swings in the growth of government expenditure: an international historical perspective

Public Choice - Adopting an international historical perspective, this study aims to identify the main empirical regularities in the long-run growth pattern of government expenditure. The...