Mortgage Rates, Household Balance Sheets, and Real Economy · 2016. 10. 27. · Associated with 36% relative decrease in mortgage default (1.8 pp) • Diff-in-diffs Identification

Amit SeruChicago Booth and NBER

Vincent YaoFannie Mae

Ben KeysUniversity of Chicago Harris

Tomasz PiskorskiColumbia Business School and NBER

Mortgage Rates, Household Balance Sheets, and Real Economy

May 2015

Motivation• Long-standing debate on real effects of monetary policy

Extraordinary recent actions to keep rates low

• Residential mortgage market believed to play an importantrole in the transmission of monetary policy Homes and mortgage debt as key household asset and liability Adjustable rate mortgages (ARMs) represent frictionless

pass-through

• Empirical evidence on the impact of lower mortgage rateson households/broader economy fairly limited Data limitations Identification challenges

2

This Paper• Provide novel evidence on the impact of lower rates on

households and broader economy during the crisis Micro: Household balance sheet and (inferred) consumption

Credit card debt, auto financing Regional: Broader economy

House prices, durable consumption, employment

• Speak to policies on mortgage market rules/regulations Significant debate regarding the relative magnitudes

Does debt deleveraging limit consumption response? (Agarwal et al. 2012, Mian and Sufi 2013)

Mortgage modification programs, programs facilitating refinancing Remove institutional frictions in implementation of policies

[HAMP/HARP] since all eligible households receive rate reduction

3

Related Literature• Contribute to literature on

Monetary transmission mechanism Household response to income shocks & (fiscal) stimulus programsMortgage payments reduction / modification on defaults Household behavior during recent crisis

• We add to the literature in significant ways Significant stimulus spaced over time in contrast to one-time income

increase Impact of lower mortgage rates on consumer debt and other

economic outcomes

Closely related to concurrent work by Di Maggio et al. 2014

4

Empirical Challenges• Hard to empirically assess impact of lower interest rates

Rates endogenous with either borrower characteristics and/or macroeconomic environment

• Our approach At micro level: Exploit variation in ARM contract types across

borrowers to generate variation in rates faced by similar households

At regional level: Exploit variation in distribution of contract types (ARM share) across similar regions

5

Micro Data• Proprietary data from a secondary market participant

Detailed monthly loan-level panel dataMortgage performance data

Loan balances, current interest rate, mortgage type, payments, delinquency status, location (zip code)

Consumer credit recordsCredit card balances, auto loans, student loans, credit inquiries,

payment status, current credit score (FICO) Records matched using borrower SSN

• Dataset representative of most U.S. mortgage borrowersMore than 350,000 agency borrowers

6

Baseline Micro Evidence

8

‐1%

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012

7/1 ARM5.1% TeaserAdjusts to 2% + TR


Treasury Rate

Mortgage Rate

9

‐1%

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012



Treasury Rate

Mortgage Rate

10

‐1%

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012



Treasury Rate

Mortgage Rate

Our Focus

11

‐1%

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012

0%

1%

2%

3%

4%

5%

6%

2005 2006 2007 2008 2009 2010 2011 2012



Treasury Rate

Mortgage Rate

Our Focus

12

Rate Resets and Interest Rates

Treatment (5/1)

Control (7/1)

13

Rate Resets and Mortgage Payments

Treatment (5/1)

Control (7/1)

Mortgage Payments are reduced by $1,500 (on average) in the first year,and by $3,434 over two years

14

Impact on Mortgage Default (Two Years Out)

• Mortgage Payments: Reduction by average $3,434 over two years Associated with 36% relative decrease in mortgage

default (1.8 pp)• Diff-in-diffs Identification Assumption: In the absence of 5/1 ARM rate reset, relevant

outcomes of 5/1 ARMs follow a similar pattern as 7/1 ARM borrowers (up to a constant difference)

Interest Current Mortgage Rate Payment Delinquency

Treatment -1.75 -163.54 -0.018 (0.14)

(10.91)

(0.01)

Number of Loans 348,259 348,259 348,259

Adjusted R-squared 0.891 0.251 0.064

15

Impact on Revolving Debt Balance

Treatment (5/1)

Control (7/1)

19% of extra liquidity from lower mortgage payments allocated to revolving (credit card) debt repayment over two years

16

Impact on Durable Financing (Auto Debt)

Treatment (5/1)

Control (7/1)

10% of additional liquidity goes towards increased auto debt

17

Impact on Probability of New Auto Financing

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

‐Q4 ‐Q3 ‐Q2 ‐Q1 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

Treatment (5/1)

Control (7/1)

10% relative increase in new car financing

18

Cross-Sectional Heterogeneity

19

Top Quartile Credit Utilization

Bottom Quartile Credit Score

Change in Revolving Debt -$1284.9(321.4)

-$1206.4(280.7)

As % of Mortgage Payment Reduction 70.6% 65.1%

Debt Deleveraging: Liquidity Constrained

• Very significant debt repayment (deleveraging) in the bottom quarter of liquidity-constrained borrowers Key target of many interventions MPC often viewed as high in this group

• But upper bound MPC of 0.35 – 0.31 Not surprising that marginal dollar allocated to high cost credit

card debt in first year

20

• Wealth constrained show: Bigger improvement in mortgage delinquency Significantly larger increase in new auto debt financing No difference in debt paydown

• Liquidity constrained show: Larger reduction in credit card debt No increase in new auto debt financing

• Complex interaction across measures of wealth and liquidity constraints Traditional response: Lower-wealth households are more

responsive to income shock, but less so if they have a large credit card debt burden

Heterogeneity across Wealth/Liquidity Constraints

21

Regional Analysis

22

Empirical Strategy• Exploit regional variation in share of ARMs

Regions with more ARMs more “exposed” to lower rates Similar to Mian and Sufi (2011) and Agarwal et al. (2012) in the

context of “Cash-for-clunkers” and HAMP programs

• Ex-ante measure of exposure to interest rate declines Zip code ARM share as of Q2 2007 predicts treatment intensity

• Construct sample of similar zip codesMatched on observables (FICO, LTV, interest rate, etc.) Similar results in IV framework (using all zips)

• Investigate impact on economic outcomesMortgage defaults, house prices, durable consumption (auto) and

employment

23

Mortgage Rate: High & Low Exposure ZIP Codes

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

2006q2

2006q3

2006q4

2007q1

2007q2

2007q3

2007q4

2008q1

2008q2

2008q3

2008q4

2009q1

2009q2

2009q3

2009q4

2010q1

2010q2

2010q3

2010q4

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2

2012q3

2012q4

Treatment

Control

• Interpreting size of first stage:- 100% ARM share would lead to a decrease of 175 bp in mortgage rate

24

‐6

‐5

‐4

‐3

‐2

‐1

0

1

2

3

420

06q2

2006

q320

06q4

2007

q120

07q2

2007

q320

07q4

2008

q120

08q2

2008

q320

08q4

2009

q120

09q2

2009

q320

09q4

2010

q120

10q2

2010

q320

10q4

2011

q120

11q2

2011

q320

11q4

2012

q120

12q2

2012

q320

12q4

HP Growth: High & Low Exposure ZIP Codes

Treatment

Control

25

‐30%

‐20%

‐10%

0%

10%

20%

30%

2007 2008 2009 2010 2011 2012

Auto Growth: High & Low Exposure ZIP Codes

Treatment

Control

26

‐6

‐5

‐4

‐3

‐2

‐1

0

1

2

3

2007 2008 2009 2010 2011 2012

Employment Growth: High & Low Exposure ZIP Codes

Treatment

Control

• All of the employment response comes from non-tradable sector e.g. restaurants and grocery stores

27

Discussion• Low interest rate policies have had meaningful impact on

household spending and broader economy Supports view that shocks to household balance sheets important

factor affecting employment Will we see reversal when stimulus withdrawn?

• Partial estimates suggest that 20% relative reduction in average mortgage rates in a region results in: +3.5% increase in the annual house price growth rate +5% increase in the annual auto purchase growth rate +3% increase in the non-tradable employment growth rate

• Caveats: Cannot quantify overall impact (GE effects) Generic limitation of diff-in-diffs regional analyses

28

Conclusions• Household debt deleveraging can significantly limit the

ability to simulate household consumption Significant part of stimulus due to lower rates transferred to the

banking sector Target polices to alleviate high cost of credit card debt?

• ARM contracts facilitate simple transmission of policy Avoid institutional frictions impacting HARP and HAMP Circumvent inability to refinance (e.g. due to negative equity)

29

Bonus Slides

30

Interest Current Recent Rate Payment Inquiries

Treatment -1.14 -125.08 0.041 (0.30)

(24.52)

(0.021)

Number of Loans 348,259 348,259 348,259 Adjusted R-squared 0.557 0.226 0.081

Impact on New Credit Inquiries: One Year Horizon

31

Interest Current Recent Rate Payment Inquiries

Treatment -1.75 -163.54 -0.099 (0.14)

(10.91)

(0.017)

Number of Loans 348,259 348,259 348,259 Adjusted R-squared 0.891 0.251 0.083

Impact on New Credit Inquiries: Two Year Horizon

32

Interest Current Current Rate Payment FICO

Treatment -1.75 -163.54 5.68 (0.14)

(10.91)

(1.14)

Number of loans 348,259 348,259 348,259 Adjusted R-squared 0.891 0.251 0.07

Impact on Overall Credit Standing: Two Year Horizon

Mortgage Payments: Reduction by average $3,434 over two years Meaningful improvement in credit standing Change in composition of debt leads to overall improvement

33

Quarterly Differential Change in Auto Debt Balance for Borrowers with Agency Mortgages

‐$100

‐$50

$0

$50

$100

$150

$200

‐Q3 ‐Q2 ‐Q1 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

34

Quarterly Differential Change in Auto Debt Balance for Borrowers with Non-Agency Mortgages

‐$100

‐$50

$0

$50

$100

$150

$200

$250

$300

$350

$400

‐Q3 ‐Q2 ‐Q1 Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8

35

Distribution of Credit Scores & Revolving Debt Balances for Loans in Month 60

36

Mortgage Delinquency, House Price & Auto Sales Growth and ZIP Code ARM Share

37

Distribution of CLTV Ratios

38

Current Current Interest Rate Payment 5/1 ARM -0.065 -23.543

(0.0016) (2.31)

Loan Age > 60 0.002 -24.826 (0.0017) (3.01)

5/1 ARM * Loan Age>60 -0.915 -116.033 (0.005) (3.61)

5/1 ARM * Loan Age>60 -0.421 -16.140 * Util>M (0.0067) (5.04)

Number of loans 286,990 286,990 Adjusted R-squared 0.526 0.197

Impact Heterogeneity: By Credit UtilizationOne Year Horizon

Mortgage Payments: Similar rate decline across two groups

39


(0.0009) (2.31)

Loan Age > 60 0.003 -56.432 (0.0012) (3.51)

5/1 ARM * Loan Age>60 -1.633 -158.419 (0.0029) (4.05)

5/1 ARM * Loan Age>60 -0.230 -5.326 * Util>M (0.004) (5.55)


Impact Heterogeneity: By Credit UtilizationTwo Year Horizon


40

Current Current Mortgage Interest Rate Payment Delinquency 5/1 ARM -0.065 -23.543 0.009

(0.0016) (2.31) (0.0006)

Loan Age > 60 0.002 -24.826 0.003 (0.0017) (3.01) (0.0008)

5/1 ARM * Loan Age>60 -0.915 -116.033 -0.002 (0.005) (3.61) (0.0011)

5/1 ARM * Loan Age>60 -0.421 -16.140 -0.007 * Util>M (0.0067) (5.04) (0.0023)



Mortgage Payments: Similar rate decline across two groups Much stronger impact on defaults of more liquidity constrained

41


(0.0009) (2.31) (0.0006)

Loan Age > 60 0.003 -56.432 0.008 (0.0012) (3.51) (0.0011)

5/1 ARM * Loan Age>60 -1.633 -158.419 -0.007 (0.0029) (4.05) (0.0014)

5/1 ARM * Loan Age>60 -0.230 -5.326 -0.022 * Util>M (0.004) (5.55) (0.003)



Mortgage Payments: Similar rate decline across two groups Much stronger impact on defaults of more liquidity constrained

42

Current Current Revolving Delinquent Utilization Interest Rate Payment Balance Revolving Balance Rate 5/1 ARM -0.065 -23.543 15.533 0.002 0.985

(0.0016) (2.31) (33.05) (0.0004) (0.107)

Loan Age > 60 0.002 -24.826 190.243 -0.002 0.738 (0.0017) (3.01) (42.28) (0.0005) (0.066)

5/1 ARM * Loan Age>60 -0.915 -116.033 199.478 -0.001 0.061 (0.005) (3.61) (54.35) (0.0009) (0.09)

5/1 ARM * Loan Age>60 -0.421 -16.140 -968.231 0.005 -0.162 * Util>M (0.0067) (5.04) (206.01) (0.002) (0.48)

Number of loans 286,990 286,990 286,990 286,990 286,990 Adjusted R-squared 0.526 0.197 0.212 0.094 0.097


Mortgage Payments: Similar rate decline across two groups More liquidity constrained (above median credit util.) allocate about

50% of extra liquidity to credit card repayment in the first year

43


(0.0009) (2.31) (32.89) (0.0005) (0.12)

Loan Age > 60 0.003 -56.432 1089.813 -0.000 3.724 (0.0012) (3.51) (66.57) (0.00) (0.11)

5/1 ARM * Loan Age>60 -1.633 -158.419 153.339 -0.000 0.117 (0.0029) (4.05) (80.7) (0.00) (0.14)

5/1 ARM * Loan Age>60 -0.230 -5.326 -1341.008 -0.011 -2.645 * Util>M (0.004) (5.55) (229.23) (0.0026) (0.484)



Mortgage Payments: Similar rate decline across two groups More liquidity constrained (above median credit util.) allocate about

38% of extra liquidity to credit card repayment in the first year

44

Current Current Auto Delinquent Interest Rate Payment Balance Auto Balance 5/1 ARM -0.065 -23.543 -285.074 7.279

(0.0016) (2.31) (71.792) (5.97)

Loan Age > 60 0.002 -24.826 -245.762 -2.823 (0.0017) (3.01) (78.514) (5.88)

5/1 ARM * Loan Age>60 -0.915 -116.033 62.079 -0.078 (0.005) (3.61) (54.976) (7.8)

5/1 ARM * Loan Age>60 -0.421 -16.140 -116.075 4.992 * Util>M (0.0067) (5.04) (53.39) (22.69)

Number of loans 286,990 286,990 286,990 286,990 Adjusted R-squared 0.526 0.197 0.014 0.011


Mortgage Payments: Similar rate decline across two groups More liquidity constrained (above median credit util) do not obtain

much new car financing in the first year

45

Current Current Auto Delinquent Interest Rate Payment Balance Auto Balance 5/1 ARM -0.038 -21.621 -303.347 6.996

(0.0009) (2.31) (144.462) (5.93)

Loan Age > 60 0.003 -56.432 -511.526 15.556 (0.0012) (3.51) (241.87) (11.97)

5/1 ARM * Loan Age>60 -1.633 -158.419 179.984 -10.498 (0.0029) (4.05) (100.504) (14.79)

5/1 ARM * Loan Age>60 -0.230 -5.326 -25.500 -35.774 * Util>M (0.004) (5.55) (141.121) (26.9)



Mortgage Payments: Similar rate decline across two groups At 2 year horizon the adverse effect of high credit utilization on auto

financing weakens weakens

46

Current Current Current Interest Rate Payment FICO 5/1 ARM -0.038 -21.621 -4.856

(0.0009) (2.31) (0.23)

Loan Age > 60 0.003 -56.432 -3.698 (0.0012) (3.51) (0.40)

5/1 ARM * Loan Age>60 -1.633 -158.419 1.868 (0.0029) (4.05) (0.48)

5/1 ARM * Loan Age>60 -0.230 -5.326 5.648 * Util>M (0.004) (5.55) (0.86)



47


(0.0016) (2.29)

Loan Age > 60 0.002 -23.563 (0.0018) (2.99)

5/1 ARM * Loan Age>60 -0.901 -114.026 (0.0048) (3.58)

5/1 ARM * Loan Age>60 -0.446 -19.880 * FICO<M (0.0067) (5.03)


Impact Heterogeneity: By Credit ScoreOne Year Horizon


48


(0.0009) (2.29)

Loan Age > 60 0.003 -55.663 (0.0013) (3.51)

5/1 ARM * Loan Age>60 -1.623 -155.668 (0.003) (4.04)

5/1 ARM * Loan Age>60 -0.247 -9.954 * FICO<M (0.004) (5.56)


Impact Heterogeneity: By Credit ScoreTwo Year Horizon


49


(0.0016) (2.29) (0.0003)

Loan Age > 60 0.002 -23.563 0.004 (0.0018) (2.99) (0.0005)

5/1 ARM * Loan Age>60 -0.901 -114.026 0.001 (0.0048) (3.58) (0.001)

5/1 ARM * Loan Age>60 -0.446 -19.880 -0.013 * FICO<M (0.0067) (5.03) (0.0025)



Mortgage Payments: Similar rate decline across two groups Much stronger impact on defaults of less creditworthy

50


(0.0009) (2.29) (0.0003)

Loan Age > 60 0.003 -55.663 0.009 (0.0013) (3.51) (0.0009)

5/1 ARM * Loan Age>60 -1.623 -155.668 -0.003 (0.003) (4.04) (0.001)

5/1 ARM * Loan Age>60 -0.247 -9.954 -0.030 * FICO<M (0.004) (5.56) (0.0028)



Mortgage Payments: Similar rate decline across two groups Much stronger impact on defaults of less creditworthy

51


(0.0016) (2.29) (54.66) (0.00) (0.125)

Loan Age > 60 0.002 -23.563 475.554 0.002 0.730 (0.0018) (2.99) (71.40) (0.0004) (0.095)

5/1 ARM * Loan Age>60 -0.901 -114.026 258.270 -0.000 0.185 (0.0048) (3.58) (92.9) (0.00) (0.124)

5/1 ARM * Loan Age>60 -0.446 -19.880 -906.475 0.003 -0.138 * FICO<M (0.0067) (5.03) (216.86) (0.0018) (0.493)



Mortgage Payments: Similar rate decline across two groups Less creditworthy (below median FICO) allocate about 50% of extra

liquidity to credit card repayment in the first year

52

Current Current Revolving Delinquent Utilization Interest Rate Payment Balance Revolving Balance Rate 5/1 ARM -0.039 -22.768 670.338 -0.000 1.635

(0.0009) (2.29) (54.72) (0.00) (0.139)

Loan Age > 60 0.003 -55.663 1290.809 0.005 3.402 (0.0013) (3.51) (101.24) (0.0005) (0.138)

5/1 ARM * Loan Age>60 -1.623 -155.668 12.104 0.000 -0.348 (0.003) (4.04) (121.04) (0.00) (0.169)

5/1 ARM * Loan Age>60 -0.247 -9.954 -1007.830 -0.012 -1.685 * FICO<M (0.004) (5.56) (241.69) (0.0025) (0.497)



Mortgage Payments: Similar rate decline across two groups Less creditworthy (below median FICO) allocate about 36% of extra

liquidity to credit card repayment over two years

53

Current Current Auto Delinquent Interest Rate Payment Balance Auto Balance 5/1 ARM -0.067 -24.697 -43.630 -1.978

(0.0016) (2.29) (49.574) (1.55)

Loan Age > 60 0.002 -23.563 -212.162 1.076 (0.0018) (2.99) (79.675) (1.99)

5/1 ARM * Loan Age>60 -0.901 -114.026 177.076 0.775 (0.0048) (3.58) (66.996) (4.31)

5/1 ARM * Loan Age>60 -0.446 -19.880 -293.164 2.504 * FICO<M (0.0067) (5.03) (76.383) (22.76)



Mortgage Payments: Similar rate decline across two groups Less creditworthy (below median credit score) do not obtain much

new car financing in the first year

54

Current Current Auto Delinquent Interest Rate Payment Balance Auto Balance 5/1 ARM -0.039 -22.768 -62.633 -2.216

(0.0009) (2.29) (47.745) (1.59)

Loan Age > 60 0.003 -55.663 -423.552 6.811 (0.0013) (3.51) (154.757) (4.54)

5/1 ARM * Loan Age>60 -1.623 -155.668 322.019 10.698 (0.003) (4.04) (99.164) (7.48)

5/1 ARM * Loan Age>60 -0.247 -9.954 -251.808 -73.436 * FICO<M (0.004) (5.56) (126.936) (25.59)



Mortgage Payments: Similar rate decline across two groups At 2 year horizon this adverse effect on below median credit score

on new auto financing weakens

55

Current Current Current Interest Rate Payment FICO 5/1 ARM -0.039 -22.768 -4.248

(0.0009) (2.29) (0.126)

Loan Age > 60 0.003 -55.663 -7.934 (0.0013) (3.51) (0.30)

5/1 ARM * Loan Age>60 -1.623 -155.668 0.728 (0.003) (4.04) (0.36)

5/1 ARM * Loan Age>60 -0.247 -9.954 6.854 * FICO<M (0.004) (5.56) (0.773)



56

Treatment Effect of Reduction in Mortgage Payments on Debt Deleveraging

57

ZIP Code ARM Share & Change in Mortgage Rate (IV 1st Stage)

(1) (2) (3) ARM Share -0.0209

(0.0002) -0.0201 (0.0002)

-0.0198 (0.0003)

Zip Code Controls No Yes Yes State FE No No Yes Number of Zip Codes 8084 7488 7488 R-Squared 0.571 0.711 0.728

58

Change in Delinquency, House Price & Auto Sales Growth on ZIP Code Change in Mortgage Rate (IV 2nd Stage)

Mortgage Delinquency Growth House Price Growth Auto Sales Growth (1) (3) (4) (6) (7) (9)

Mortgage Rate Change 28.93 18.08 -0.39 -0.79 -2.70 -1.26 (0.82) (1.31) (0.07) (0.10) (0.15) (0.27)

Zip Code Controls No Yes No Yes No Yes State FE No Yes No Yes No Yes Number of Zip Codes 8082 7487 8000 7487 8084 7488 Adjusted R-squared 0.091 0.341 0.05 0.429 0.020 0.185

59

Summary Statistics (Month 48)

Full Sample 5/1 ARMs 7/1 ARMs Mean S.D. Mean S.D. Mean S.D.

Original Rate 5.05 0.71 5.02 0.75 5.12 0.60 Current Rate 5.05 0.71 5.02 0.75 5.12 0.60 Margin 2.48 0.31 2.48 0.32 2.48 0.28 Current Mortgage Payment 1,013 441.89 1,012 444.79 1,014 434.95 Number of Student Loans 0.42 0.80 0.41 0.80 0.42 0.81 Number of Recent Credit Inquiries 1.86 2.05 2.00 2.08 1.76 1.98 Revolving Debt 12,426 19,149 12,642 19,427 11,901 18,483 Delinquent Revolving Debt 0.036 0.21 0.04 0.22 0.03 0.20 Revolving Utilization 24.26 26.25 24.99 26.74 22.55 24.97 Auto Debt 9,147 14,262 9,223 14,361 8,995 14,026 Origination FICO 725.76 53.86 724.42 53.96 728.95 53.51 Current FICO 727.07 78.09 724.40 79.52 733.38 74.21 Origination Combined LTV 74.00 17.75 74.15 17.93 73.64 17.31 Mortgage Delinquency Rate 0.02 0.18 0.026 0.025 0.015 0.15 Number of Loans 348,259 244,765 103,494

60

Full Sample 5/1 ARMs 7/1 ARMsMean S.D. Mean S.D. Mean S.D.

Original Rate 5.04 0.72 5.02 0.76 5.10 0.60 Current Rate 5.04 0.72 5.02 0.76 5.10 0.60 Margin 2.48 0.31 2.48 0.32 2.49 0.28 Current Mortgage Payment 1,010 443 1,010 447 1,008 434 Number of Student Loans 0.41 0.81 0.41 0.81 0.42 0.82 Number of Recent Credit Inquiries 1.85 2.02 1.90 2.06 1.74 1.92 Revolving Debt 12,846 18,430 13,040 18,819 12,413 17,536 Delinquent Revolving Debt 0.05 0.18 0.05 0.18 0.04 0.16 Revolving Utilization 25.40 78.13 26.46 92.75 23.09 25.17 Auto Debt 8,463 21,144 8,465 21,922 8,459 19,361 Origination FICO 725.00 54.39 723.28 54.54 728.78 53.85 Current FICO 725.25 77.24 721.74 78.89 732.91 72.91 Origination Combined LTV 73.89 17.81 74.13 17.97 73.34 17.45 Mortgage Delinquency Rate 0.04 0.20 0.04 0.00 0.03 0.17

Summary Statistics (Month 60)

61

Geographic Distribution of ZIP Codes

62

Geographic Distribution of ZIP Codes

63

High Exposure Zip Codes

Low Exposure Zip Codes

Mean (S.D.) Mean (S.D.) FICO 714.8 (23.2) 716.0 (18.9) LTV 64.5 (7.29) 68.1 (7.00) Interest Rate 6.64 (0.57) 6.68 (0.48) Mortgage Delinquency Rate 2.81 (3.09) 2.23 (1.83) Unemployment Rate 6.04 (1.55) 5.91 (1.47) Median Income 58.42 (14.13) 52.77 (14.38) Percentage with College Degree 31.4 (10.1) 29.5 (9.42) Percentage Married with Children 21.9 (5.13) 21.6 (5.13) Consumer Credit Score 3.37 (0.41) 3.35 (0.35) ARM Share 35.2 (7.62) 17.3 (4.51)

Range in zip code ARM share: 5.8% to 63%

Summary Statistics

64

FICO Score: High & Low Exposure ZIP Codes

650

660

670

680

690

700

710

720

730

740

750

2006q2 2006q3 2006q4 2007q1 2007q2

Treatment

Control

65

Mortgage Rate: High & Low Exposure ZIP Codes

3.03.54.04.55.05.56.06.57.07.58.08.59.0

2006q2 2006q3 2006q4 2007q1 2007q2

Treatment

Control

66

Interest Rate Indices

0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.02006q2

2006q3

2006q4

2007q1

2007q2

2007q3

2007q4

2008q1

2008q2

2008q3

2008q4

2009q1

2009q2

2009q3

2009q4

2010q1

2010q2

2010q3

2010q4

2011q1

2011q2

2011q3

2011q4

2012q1

2012q2

2012q3

2012q4

Six Month LIBOR 1yr Treasury

Documents

Mortgage Rates, Household Balance Sheets, and Real Economy · 2016. 10. 27. · Associated with 36% relative decrease in mortgage default (1.8 pp) • Diff-in-diffs Identification