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Credit record panel data from 1999-2010 indicates that the likelihood of home equity extraction (borrowing, on average, about $40,000 against one's home) peaked in 2003 when mortgage rates reached historic lows. We estimate a 27 percent rise in extraction in response to a 100 basis point rate decline, and that house price growth amplifies this relationship. Differential responses to interest rates and home price appreciation by borrower age and credit score provide new evidence of financial frictions. Finally, equity extractions are associated with higher default risk, consistent with the use of borrowed funds for consumption or illiquid investment.

In response to the severe economic shock induced by the COVID-19 pandemic, Congress passed the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Using data on savings, income, and expenses from the Survey of Consumer Finances, we show that cash assistance included in the CARES Act allows almost all families to cover their normal, recurring expenses in the event of long-term unemployment. In the absence of government support, nearly half of families who lose their income for six months would not be able to cover their expenses due to low levels of liquid saving and standard unemployment insurance benefits that do not fully replace income.

We test for racial discrimination in the prices charged by mortgage lenders. We construct a unique data set from which we observe the three dimensions of a mortgage’s price: the interest rate, discount points, and fees. Although we find statistically significant gaps by race and ethnicity in interest rates, these gaps are offset by differences in discount points. We trace out point-rate schedules and show that minorities and whites face identical schedules, but sort to different locations on the schedule. Such sorting may reflect systematic differences in liquidity or preferences. Finally, we find no differences in total fees by race or ethnicity.

From 2007 to 2009 U.S. house prices plunged and mortgage defaults surged. While ostensibly consistent with widespread \"ruthless default,\" analysis of detailed mortgage and house price data indicates that borrowers do not walk away until they are deeply underwater—far deeper than traditional models predict. The evidence suggests that lender recourse is not the major driver of this result. We argue that emotional and behavioral factors play an important role in decisions to continue paying. Borrower reluctance to walk away implies that the moral hazard cost of default as a form of social insurance may be lower than suspected.

This paper evaluates the Community Reinvestment Act (CRA), a law mandating that banks help meet the credit needs of lower income households and neighborhoods. To measure the effect of the law on lending to targeted groups since 1994, I take advantage of discontinuous targeting rules and abrupt changes in target status. On average, the CRA appears to have had little impact on mortgage lending, even during the mid-2000s, when lending to lower income areas nevertheless soared. I do find a significant effect during the late 1990s and early 2000s in large metropolitan areas, when and where the CRA may have been most binding. I use this episode to test the effect of the CRA on overall mortgage availability—that is, lending by both regulated and unregulated institutions. The results are consistent with the notion that government intervention in credit markets may be justified on the grounds that information externalities exist and can depress credit supply.

High-cost consumer credit has proliferated in the past two decades, raising regulatory scrutiny. We match administrative data from a payday lender with nationally representative credit bureau files to examine the choices of payday loan applicants and assess whether payday loans help or harm borrowers. We find consumers apply for payday loans when they have limited access to mainstream credit. In addition, the weakness of payday applicants' credit histories is severe and longstanding. Based on regression discontinuity estimates, we show that the effects of payday borrowing on credit scores and other measures of financial well-being are close to zero. We test the robustness of these null effects to many factors, including features of the local market structure.

High-interest payday loans have proliferated in recent years; so too have efforts to regulate them. Yet how borrowers respond to such regulations remains largely unknown. Drawing on both administrative and survey data, we exploit variation in payday-lending laws to study the effect of payday loan restrictions on consumer borrowing. We find that although such policies are effective at reducing payday lending, consumers respond by shifting to other forms of high-interest credit (for example, pawnshop loans) rather than traditional credit instruments (for example, credit cards). Such shifting is present, but less pronounced, for the lowest-income payday loan users. Our results suggest that policies that target payday lending in isolation may be ineffective at reducing consumers’ reliance on high-interest credit.

We provide novel evidence of misaligned incentives fueling a portion of the 2000s mortgage boom. We document that private mortgage insurance (PMI) companies expanded insurance issuance on high-risk mortgages purchased by Fannie Mae and Freddie Mac at the tail end of the housing boom, without changing pricing and despite knowledge of heightened housing risk. The expansion of PMI facilitated an unprecedented increase in Fannie and Freddie’s risky purchases, extending the mortgage boom into 2007 and precipitating their collapse. We argue that this unraveling reflects a general moral hazard problem in insurance, coupled with misaligned incentives in the government-backed mortgage market.

I estimate the credit supply effect of the Underserved Areas Goal (UAG), which establishes GSE purchase goals for mortgages to lower-income and minority neighborhoods. Taking advantage of discontinuous census tract eligibility rules and abrupt changes in tract eligibility, I find some evidence of a small UAG effect on GSE purchases and mortgage originations, without crowding-out of FHA and subprime lending. The results also suggest that the GSEs exploit the law’s lack of precision-targeting, yielding effects that might diverge from the law’s intent.

We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008-2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic.