Working Papers
- Red Tape, Greenleaf: Creditor Behavior Under Costly Collateral Enforcement
MFA Doctoral Symposium Finalist (2022)
SFA Doctoral Student Paper Runners-Up Award (2022)
I show that when repossessing collateral becomes costly, creditors choose to sell their delinquent debt on the secondary market rather than renegotiate with borrowers. Only when repossession becomes prohibitively expensive, thus impeding sale, do creditors offer forbearance. I exploit quasi-experimental variation from an increase in foreclosure costs due to Maine’s Greenleaf judgment. To foreclose on loans associated with an electronic registry, the judgment required affected creditors to request reassignment of their mortgage from the initial lender. For treated loans, I estimate that foreclosures fell by 26% (0.09 pp) and debt sales increased by 57% (0.05 pp). I find no evidence of an increase in formal modifications on the part of creditors or default on the part of borrowers. In cases where the initial lender filed for bankruptcy, treated loans experienced no increase in sales. Instead, these loans benefited from reduced delinquency in a manner resembling creditor forbearance.
Presentations: Fuqua Finance Brownbag, 4th Conference on Law & Macroeconomics (Yale), 4th Contemporary Issues in Banking Conference (St Andrews), Haverford College, MFA Doctoral Symposium, MFA, Eastern FA, Economics of Financial Technology Conference (University of Edinburgh), University of Oregon PhD Finance Workshop, FIRS, WFC, FMA, SFA, University of Pittsburgh (Katz), Baruch College (Newman), University of Rochester (Simon), OFR, University of Michigan (Ross), University of Virginia (Darden), FRB New York, Indiana University (Kelley), Notre Dame (Mendoza), ASU (Carey), Federal Reserve Board, Cornell University (Nolan)
- Black Box, Greenleaf: Lender Behavior Under Uncertain Collateral Enforcement
This paper uses a shock to downside risk in contract enforcement to study lender behavior when collateral enforcement becomes uncertain. I exploit quasi-experimental variation from Maine’s 2014 Greenleaf judgment that increased enforcement costs on existing creditors but mechanically left new lenders unaffected. I estimate that the most exposed banks restricted lending by 21%, almost exclusively for portfolio loans. I provide evidence that this contraction in credit was not driven by balance sheet losses or capital flight on the part of investors. Exploring the mechanism, I find that banks likely tightened lending standards following the judgment. Consequently, exposed banks issued safer loans and denied high debt-to-income loan applications above the conforming loan limit. Furthermore, the salience of the shock increased in proximity to the judgment, size of the bank, and bank portfolio concentration. Lastly, following the judgment, I identify spillovers to other bank operations and the local economy. Small business lending increased in bank branch localities, house prices fell in the most exposed zip codes, and exposed counties experienced an increase in unemployment.
Presentations: Conference on Consumer Financial Decision Making Poster Session (University of Colorado), IWFSAS (City University of London), UEA, CEAR-CenFIS, Fuqua Finance Brownbag, FMA, SFA, SEA, IBEFA
- Yellow Light Foreclosures: Collateral Enforcement Under Delayed Debt Sale
This paper studies how delayed debt sale affects foreclosure and renegotiation. To disentangle the effect of loan sales from that of loan quality, I exploit an unanticipated suspension in loan buyouts for Ginnie Mae-securitized mortgages early delinquency. The ban suspended buyouts for loans experiencing a rolling 30-day delinquency but still allowed buyouts for 90-day delinquencies. I find that treated loans experienced an 18.6 percentage point decline in buyouts relative to untreated loans. These same loans subsequently experienced a 2.7 percentage point increase in foreclosures and a 2.8 percentage point reduction in cures. The effect on cures breaks down at longer horizons, suggesting that the delay in debt sale prevents curing the loan fast enough to avoid foreclosure. Finally, placebo tests and pre-trends reinforce the exclusion restriction.
Presentations: FDIC, Fuqua Finance Brownbag, EEA, SWFA, MFA, SFA
- White Out Bad Policy: Pass-Through Under Costly Debt Sale (and its Reversal)
I study how lenders pass through costs associated with debt sale downstream to borrowers. I show that when the cost of debt sale increases, lenders fully pass these costs to borrowers through both higher interest rates and upfront costs. I exploit the timing of an unanticipated FHFA policy that charged a 0.5% fee on the total loan amount sold to the GSE’s. Using a difference-in-differences research design and high-frequency mortgage data, I find that the 50bp fee led to an 8bp increase in interest rates and 20bp increase in discount points, totaling a 100% pass-through. Geographic variation in loan, borrower, and market characteristics fail to explain any heterogeneity in pass-through. In concentrated markets, however, high market share lenders pass through 120% of these costs while low market share lenders pass through as little as 60%. Finally, I rule out an information-channel by conducting placebo tests on the policy’s eventual reversal.
Presentations: CMU/Pitt/PSU Finance Conference, Temple Brownbag (Fox), University of Conneticut (Economics)
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Work in Progress
- Blue Skies: Creditor Recoveries Under Reduced Protections
