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What fuels the boom drives the bust : regulation and the mortgage crisis

Author: Jihad Dagher; Ning Fu; IMF Institute,
Publisher: [Washington, D.C.] : International Monetary Fund, ©2011.
Series: IMF working paper, WP/11/215.
Edition/Format:   eBook : Document : International government publication : EnglishView all editions and formats
Summary:
We show that the lightly regulated non-bank mortgage originators contributed disproportionately to the recent boom-bust housing cycle. Using comprehensive data on mortgage originations, which we aggregate at the county level, we first establish that the market share of these independent non-bank lenders increased in virtually all US counties during the boom. We then exploit the heterogeneity in the market share of  Read more...
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Genre/Form: Electronic books
Additional Physical Format: Print version:
Dagher, Jihad.
What Fuels the Boom Drives the Bust: Regulation and the Mortgage Crisis.
Washington : International Monetary Fund, ©2011
Material Type: Document, Government publication, International government publication, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Jihad Dagher; Ning Fu; IMF Institute,
ISBN: 1283553600 9781283553605 1463913974 9781463913977
OCLC Number: 755009249
Notes: At head of title: IMF Institute.
Title from PDF title page (IMF Web site, viewed September 28, 2011).
"September 2011."
Description: 1 online resource (58 pages).
Contents: Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Data and Summary Statistics; A. Data; B. Summary statistics; 1. Income distribution; 2. Market share of independents; 3. The expansion of independent lenders in U.S. counties; 4. Foreclosures in percentage of originated mortgage credit; 5. Foreclosures; 6. Mortgage credit boom and bust; 1. Summary statistics: loan originations; 2. Statistical summary of the county level variables; III. Mortgage credit expansion: 2003-2005; 3. Expansion of the Independents; 4. Expansion and house prices. IV. The Rise in Foreclosures and the Role of IndependentsA. Motivating Facts; 7. Credit, house prices, and unemployment; B. Empirical methodology; 1. Parametric approach; 2. Matching methods; C. Parametric Results; 5. The relation between the rise in foreclosure rates and the market share of independents; 6. Early rise in foreclosure rates in counties with high and low mortgage credit growth; (a) Credit, house prices, and unemployment; 7. The relation between market share of independents and the change in credit, house prices, and unemployment; D. Matching results; 1. Balancing tests. 8. Comparison between treated and control samples obtained from the interstate matching procedure9. Comparison between treated and control samples obtained from the intrastate matching procedure; 2. The Abadie-Imbens Estimator; 10. Matching estimators, interstate; 11. Matching estimators, intrastate; 3. OLS on the matched subsample; 12. OLS regressions on the full, interstate matched, and intrastate matched samples; E. Discussion; V. Exploring the Role of Regulation and Alternative Hypotheses; A. Alternative Hypotheses. 13. The relation between the rise in foreclosure rates and market share of independents: Robustness analysisB. State regulation; 14. The relation between the rise in foreclosure rates and market share of independents: the role of regulation; VI. Conclusion; VII. Data Appendix; Footnotes.
Series Title: IMF working paper, WP/11/215.
Responsibility: Jihad C. Dagher and Ning Fu.

Abstract:

We show that the lightly regulated non-bank mortgage originators contributed disproportionately to the recent boom-bust housing cycle. Using comprehensive data on mortgage originations, which we aggregate at the county level, we first establish that the market share of these independent non-bank lenders increased in virtually all US counties during the boom. We then exploit the heterogeneity in the market share of independent lenders across counties as of 2005 and show that higher market participation by these lenders is associated with increased foreclosure filing rates at the onset of the housing downturn. We carefully control for counties' economic, demographic, and housing market characteristics using both parametric and semi-nonparametric methods. We show that this relation between the pre-crisis market share of independents and the rise in foreclosure is more pronounced in less regulated states. The macroeconomic consequences of our findings are significant: we show that the market share of these lenders as of 2005 is also a strong predictor of the severity of the housing downturn and subsequent rise in unemployment. Overall our findings lend support to the view that more stringent regulation could have averted some of the volatility on the housing market during the recent boom-bust episode.

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