Research

Working papers

The Roles of Borrower Private Information and Mortgage Relief Design in Foreclosure Prevention  
Awarded the 2024 Public Utility Research Center Prize by the Industrial Organization Society.

Abstract: I study frictions that prevent banks and loan servicers from granting debt relief to struggling borrowers in the U.S. residential mortgage market. I contribute to a growing literature on selection markets in industrial organization by exploring how asymmetric information, transaction costs, and aid generosity associated with granting debt relief affect mortgage foreclosure outcomes. To disentangle these mechanisms, I introduce a structural model in which banks decide whether to offer debt relief to potentially distressed borrowers when processing relief is costly and borrowers hold private information about their financial well-being. Relative to full information, banks reduce the probability of granting relief to deter financially healthy borrowers from pretending to be distressed, leading to more foreclosures in equilibrium. I use my model to estimate the impact of the Federal Home Affordable Modification Program (HAMP) using the outcomes of mortgages that were originated before the 2008 financial crisis. I find that HAMP incentive payments offset bank costs enough to increase relief disbursement and to decrease realized foreclosures by 3%, or 200,000 properties nationally, over the decade from 2007 to 2016. Despite this, information frictions increased total foreclosures by 14%, or the equivalent of 1.1 million properties and $110 billion of lost value over the same time period. Finally, I find that the level of borrower relief prescribed under HAMP was insufficient for preventing 86% of foreclosures, highlighting the extent of borrower distress arising during 2008. Beyond malpractice in mortgage origination, my findings illustrate how debt relief design and the financial intermediary behavior contributed to the widespread occurrence of foreclosure in the United States.

Regulation, market structure, and housing affordability: An investigation of Airbnb’s decline in San Francisco
Major revision uploaded on June 18, 2024. Scope of the project has been broadened to assess effects on long-term rental markets.

Abstract: I model how the composition of host types in the short-term rental (STR) market and the method of enforcing rules determine whether entry regulations shift housing supply to traditional rental markets. The model predicts outcomes consistent with license enforcement that occurred in San Francisco in early 2018. I find that STR regulations disproportionately drive small, non-professional suppliers to exit from all rental markets, and document that larger, professional hosts increasingly shift their supply to create a new market for regulation-exempt, medium-term rentals. I find no evidence of reduced rental rates, home prices, or increased housing inventory following regulatory enforcement.

Work in progress

Targeting Aid During a Crisis: Speed, Selection, and Subsidy Design, with Jori Barash

Abstract: In times of crisis, means-tested government programs sometimes relax eligibility standards to deliver aid faster. With adverse selection and less time to screen beneficiaries, relaxed eligibility may increase expenditure on non-targeted populations and decrease pass-through to households from private intermediaries, with both mechanisms lowering efficacy. The tradeoff between speed and eligibility standards is motivated by the relatively untested premise that faster delivery meaningfully improves outcomes. This paper shows that timely subsidized modification of distressed mortgages could have further reduced U.S. foreclosures in the aftermath of the 2008 financial crisis. We exploit a simulated instrument based on the spatial distribution of financial shocks. Using a dynamic structural model of servicers' modification and foreclosure choices, we characterize how the optimal modification subsidy varies with time from delinquency, servicer volume, and market conditions.

Borrower composition, servicing behavior and state-level regulation in the U.S. foreclosure crisis