Anthony B. Sanders

Low down payment mortgages were prevalent before the financial crisis, slowed down during the financial crisis, but have reemerged since the financial crisis. The Federal Housing Administration has a history of insuring 3% down payment mortgages to help lower- and middle-income households purchase a home, but Fannie Mae and Freddie Mac recently have introduced 3% (and lower) down payment programs. In addition, mortgage innovation in the form of the “wealth building mortgage” now adds the possibility of a 100% loan-to-value (LTV) ratio. In this paper, we examine the performance of low down payment (or high LTV) lending. We find that low initial down payment mortgages are significantly more likely to become seriously delinquent (90 days or more) than mortgages with traditional down payments of 20% or more. TOPICS:Fixed income and structured finance, MBS and residential mortgage loans, risk management, credit risk management, legal/regulatory/public policy, financial crises and financial market history Key Findings ▪ This study finds meaningfully accurate estimates of the likelihood of more severe delinquency payment status changes by using individual mortgage loan, borrower, and county-level risk factors as explanatory variables. ▪ Low initial down payment mortgages are significantly more likely to become seriously delinquent (90 days or more) than mortgages with traditional downpayments of 20% or more. ▪ Initial borrower and mortgage characteristics, such as LTV, borrower documentation, or FICO score, are dominant factors in the likelihood of delinquency and default.

We study conflicting incentives of the master and special servicers in handling troubled loans in a Commercial Mortgage‐Backed Securities deal and how the frictions between the interests of the two servicers might be diminished if the master and special servicing rights are held by the same firm. We show that concentrating both servicing rights in one firm reduces the likelihood that a defaulted loan terminates in foreclosure.

This article focuses on the potential externalities associated with subprime mortgage origination activity. Specifically, we examine whether negative spillover effects from subprime mortgage originations result in higher default rates in the surrounding area. Our empirical analysis controls for loan characteristics, house price changes and alternative loan products. Our results indicate that, after controlling for these characteristics, the concentration of subprime lending in a neighborhood does not lead to greater default risks for surrounding borrowers. However, we do find that more aggressive mortgage products (such as hybrid adjustable rate mortgages and low/no‐documentation loans) had significant negative spillovers on other borrowers. Stated differently, the aggressive alternative mortgage designs were more toxic to the housing and mortgage market than previously believed.

This paper discusses some of the key characteristics of the U.S. subprime mortgage boom and bust, contrasts them with characteristics of emerging mortgage markets, and makes recommendations for emerging market policy makers. The crisis has raised questions in the minds of many as to the wisdom of extending mortgage lending to low and moderate income households. It is important to note, however, that prior to the growth of subprime lending in the 1990s, U.S. mortgage markets already reached low and moderate -income households without taking large risks or suffering large losses. In contrast, in most emerging markets, mortgage finance is a luxury good, restricted to upper income households. As policy makers in emerging market seek to move lenders down market, they should adopt policies that include a variety of financing methods and should allow for rental or purchase as a function of the financial capacity of the household. Securitization remains a useful tool when developed in the context of well-aligned incentives and oversight. It is possible to extend mortgage lendingdown market without repeating the mistakes of the subprime boom and bust.

We examine the effects of over 6,000 M&As; involving more than 10,000 banks on small business lending. We are the first to decompose the impact of M&As; into static effects associated with a simple melding of the antecedent institutions and dynamic effects associated with post-M&A; refocusing of the consolidated institution. We are also the first to estimate the reactions of other local banks to M&As.; We find that the static effects that reduce small business lending are mostly offset by the reactions of other banks and, in some cases, also by the refocused efforts of the consolidating institutions themselves.