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Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Published by Anonymous (not verified) on Tue, 27/07/2021 - 5:56am in

Tags 

Credit, mortgages

Jessica Lu and Wilbert van der Klaauw

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

It is common during recessions to observe significant slowdowns in credit flows to consumers. It is more difficult to establish how much of these declines are the consequence of a decrease in credit demand versus a tightening in supply. In this post, we draw on survey data to examine how consumer credit demand and supply have changed since the start of the COVID-19 pandemic. The evidence reveals a clear initial decline and recent rebound in consumer credit demand. We also observe a modest but persistent tightening in credit supply during the pandemic, especially for credit cards. Mortgage refinance applications are the main exception to this general pattern, showing a steep increase in demand and some easing in availability. Despite tightened standards, we find no evidence of a meaningful increase in unmet credit need.

Demand and Supply of Household Credit during a Recession

How would one generally expect credit flows to consumers to change during a recession? To the extent that households perceive declines in income and wealth as permanent, they may lower current consumption and demand for debt. Similarly, an increase in uncertainty can depress consumption and increase precautionary or “buffer-stock” saving, reducing demand for credit. On the other hand, during recessions households may optimally respond to a temporary negative income shock by drawing on new and existing credit in order to smooth consumption.

On the supply side, access to credit may become more difficult during recessions due to a rise in lender risk aversion or a reduction in collateral values. Lenders may be concerned that a recession and higher unemployment could trigger a sharp rise in loan defaults, and this concern may cause them to tighten credit standards. With lenders requiring higher credit scores, more income documentation, and reduced credit limits on new and existing loans, households may find it harder to obtain credit when they most need it.

While we expect these factors to play similar roles in the current recession, the pandemic and the public health and policy responses resulted in an economic downturn with different characteristics and dynamics than prior recessions. The recession was unique in the speed with which it took hold, the types of workers it affected, and the nature and size of the policy response. In an economy with reduced consumption opportunities (especially services) due to lockdowns, a huge decline in employment was accompanied by a steep decline in spending, but also a jump in the personal savings rate to a record high, as personal income surged in response to policy measures.

Using the SCE to Measure Demand for Credit

Our analysis draws on data from the Survey of Consumer Expectations (SCE) Credit Access Survey. The survey has queried respondents every four months since October 2013 about their experiences and expectations of applying for and obtaining credit. Our data differ from existing data sources in several important ways. First, unlike existing sources such as the Senior Loan Officer Opinion Survey (SLOOS), our survey captures realized and expected credit demand as reported by consumers instead of lenders. Second, we measure credit applications and rejections separately for different types of consumer loans, including mortgages, auto loans, and credit cards. Third, besides realized and expected credit demand, we identify “discouraged credit seekers”—respondents who report not applying for credit over the past twelve months despite needing it, because they believed they wouldn’t be approved.

In this post, we introduce a new, more forward-looking gauge of unmet need based on a new measure of latent credit demand. Specifically, starting in October 2016 we began asking respondents for the probability that they will apply for credit over the next twelve months if their application is guaranteed to be approved. Our new measure of unmet need is then defined as the difference between their answer to this question and their reported unconditional probability of applying over the next twelve months.

Application and Rejection Rates

The overall share of respondents who reported applying for any type of credit over the past year shows a v-shaped pattern after the onset of the pandemic, as shown in the chart below. After the share of those who reported applying fell from 45.6 percent in February 2020 to 39.2 percent in June and to a series low of 34.6 percent in October, we see a robust rebound in February 2021 to an application rate of 44.8 percent, just below its pre-pandemic value. We see a similar pattern for credit card application rates, which fell from 26.3 percent in February 2020 to 15.7 percent in October, though with a smaller rebound in February 2021 to 19.4 percent, still well below pre-pandemic levels. Requests for credit card limit increases (not shown) evolved comparably. Auto loan and mortgage application rates (not shown) were relatively more stable and in February 2021 were just above their year-ago levels.

The big outlier in these reported trends is a dramatic increase among mortgagors in mortgage refinance applications during the pandemic, with many mortgage loan borrowers taking advantage of low interest rates. In February 2021, 24.6 percent of mortgagors reported applying for a refinance over the past twelve months, compared to only 10.8 percent a year earlier.


Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Among those who applied for any type of credit, the share reporting a rejection has increased monotonically since the onset of the pandemic, from 14.2 percent in February 2020 to 18.5 percent in February 2021. As shown in the next chart, the increase was relatively modest and within the range of changes observed in our series’ history. The rejection rate for credit card applicants shows a somewhat more noticeable increase, rising from a series low of 9.7 percent in February 2020 to a series high of 26.3 percent a year later—a 170 percent increase. Rejections of requests for credit limit increases (not shown) follow the same trajectory—reaching a new high of 40.3 percent in February 2021. The reported rejection rates for auto loan and mortgage applicants (not shown) follow less of a clear pattern over the past year.

Rejections reported by mortgage refinance applicants initially declined, but then rebounded somewhat in February 2021 to 12.2 percent, remaining below the 15.8 percent reading a year earlier. The steep increase in demand and some easing in available credit is consistent with the general strength of the housing market and historically high levels of home equity. These findings from our survey are largely consistent with indicators of credit demand and credit tightening reported by loan officers in the SLOOS.


Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

When distinguishing respondents by age and credit score, we find that the patterns in application and rejection rates described above are largely broad-based across age and credit score groups, with two exceptions. First, the February 2021 rebound in application rates is generally much larger for respondents with self-reported credit scores between 680 and 760, aside from mortgage refinances, where the largest increase is among those with scores of 760 or higher. Second, the increase in the reported overall rejection rate during the pandemic was by far the largest for those with low credit scores (680 or below).

Two New Measures of Unmet Credit Demand

Turning now to our two alternative measures of latent credit demand (or unmet need), we first consider our backward-looking measure (shown in the left panel below). The share of discouraged borrowers, which we define as respondents who reported not applying for a loan (despite having a need for it) because they expected their application to be rejected, initially remained stable at 6.9 percent from February to June of 2020, rose slightly to 7.2 percent in October, and then fell to 6.1 percent in February 2021. Interestingly, this overall pattern masks a decline in borrower discouragement among those aged 40 and under and 60 and over, with the rate for the middle-age group increasing somewhat from 6.1 percent in February 2020 to 9.1 percent a year later. Similarly, we see an increase in discouraged borrowing among those with credit scores of 680 and below (from 21.6 percent to 28.1 percent), while seeing a slight decrease for those with higher scores.


Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Finally, we turn to our second alternative measure of latent credit demand, our forward-looking measure, available since October 2016. We first find that expected credit applications, both unconditional and conditional upon guaranteed acceptance, declined following the onset of the pandemic and more recently have experienced a considerable rebound. The initial decline in expected demand, even under guaranteed acceptance, substantiates our earlier finding of a general decrease in credit demand during the first eight months of the pandemic. Considering the difference between the two expected application rates—our indicator of unmet credit need—we find, as expected, that the gap is persistently positive, indicating a lower unconditional expected application rate due to a non-negative probability that the application will be rejected.

The panel on right above shows a simple unweighted average of the gap for mortgage, credit card, auto loan, credit limits, and mortgage refinance applications. After the onset of the pandemic, there is a slight decline in unmet credit need across all loan types, with the important exception of mortgage refinance applications. In contrast to our backward-looking measure of unmet credit (which does not distinguish between loan types), here for most loan types we find the decline in unmet need to be the largest for those with low credit scores (under 680). For mortgage refinancing (not shown), we see instead a slight rise among mortgagors in unmet need from 6.1 percent in February 2020 to 7.3 percent in June and 9.1 percent in October. However, by February 2021 the gap had narrowed to 5.5 percent. As was the case for the backward-looking measure, the increase in unmet need for refinancing is the largest for those with lower credit scores (below 680).

Conclusion

In this post, we used new data from the SCE Credit Access Survey to study the evolution of consumer credit demand and supply during the COVID-19 recession. We find that credit demand dropped sharply during most of 2020, especially for credit cards, with a modest rebound observed by February 2021. We also observe a modest increase in credit rejection rates during 2020, especially for credit cards. Despite this credit tightening and increased unemployment, we see no meaningful increase in discouraged borrowing and unmet credit need. Mortgage refinancing is the main exception to this general pattern, showing a steep increase in demand and some increase in unmet need, especially for those with lower credit scores.

These overall results likely evince the impact of large fiscal interventions, including stimulus checks and expanded unemployment insurance benefits, which have enabled many households to pay down debt, especially credit card debt, and increase their saving. Even among those with low credit scores, while unmet credit needs remain formidable, instead of an increase in expected unmet need we actually see a decline for the group for which unmet need is typically high. The only clear evidence of an increase in unmet credit needs is found for mortgage refinancing, where lower credit score mortgagors have been less able to take advantage of the low-rate environment.

Jessica Lu is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jessica Lu and Wilbert van der Klaauw, “Consumer Credit Demand, Supply, and Unmet Need during the Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, May 20, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/consumer-credit-de....

Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

What Happens during Mortgage Forbearance?

Published by Anonymous (not verified) on Tue, 27/07/2021 - 5:56am in

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

What Happens during Mortgage Forbearance?

As we discussed in our previous post, millions of mortgage borrowers have entered forbearance since the beginning of the pandemic, and more than 2 million remain in a program as of March 2021. In this post, we use our Consumer Credit Panel (CCP) data to examine borrower behavior while in forbearance. The credit bureau data are ideal for this purpose because they allow us to follow borrowers over time, and to connect developments on the mortgage with those on other credit products. We find that forbearance results in reduced mortgage delinquencies and is associated with increased paydown of other debts, suggesting that these programs have significantly improved the financial positions of the borrowers who received them.

Forbearance and Mortgage Delinquency

Since March 2020, we have observed more than 6.1 million mortgagors enter forbearance. As noted in our previous post, these forbearance participants were much more likely to be delinquent prior to the pandemic than the general population of mortgagors. One of the benefits of forbearance for these previously delinquent borrowers is that commencement of forbearance is often coincident with a “cure”: a change in mortgage status to “current.” That is, for many borrowers, mortgage delinquencies are wiped away as the borrower enters forbearance, at least temporarily. (These status changes come without evidence of payment, supporting the conclusion that the cure is the result of an administrative change rather than a true cure. Mortgage servicer reports to investors, as opposed to credit bureaus, show these loans as delinquent. Importantly, however, these investor reports do not affect borrower credit histories.)

The first chart below shows the credit bureau reporting of mortgage status for those that entered forbearance by May 2020. Around 8 percent of the mortgages were already delinquent before entering forbearance. A great majority of those accounts that were previously delinquent are reported as “current” while in forbearance, some of them by making payments and some without one. A minority—about 30 percent of the previously delinquent accounts—retain this delinquent status throughout the period. These varying treatments upon entry into forbearance seem to depend on servicer practices. As such, current foreclosure data and delinquency statistics drawn from credit bureau data do not accurately give a clear indication of housing market stresses.


What Happens during Mortgage Forbearance?

At the same time, neither does the rate of forbearance itself. Why? Because a large share of mortgagors in forbearance actually continue to make their monthly mortgage payments. Indeed, the share of borrowers who continue to make payments while in forbearance is surprisingly high: in each month since June 2020, between 30 and 40 percent of the borrowers in forbearance have made their monthly payment.

This behavior suggests that some borrowers have taken advantage of the forbearance program and skipped payments while others have applied for forbearance as an “insurance policy” against which they are not making claims, and they are reducing their balances each month as originally anticipated in the mortgage contract.

But for the 60-70 percent of forbearance borrowers who are not making payments, mortgage balances aren’t falling. In 2019, mortgagors paid off approximately 4 percent of mortgage balances by making their regular payments. By contrast, borrowers in forbearance have seen their balances increase by 1-2 percent over the course of the last year as the automatic amortization that comes from making the mortgage payment has been largely absent and the interest component of the skipped payment is added back to the balance as well. As of March 2021, among the 5 million borrowers who have taken forbearance for at least one month since the pandemic and haven’t prepaid, about 26 percent have a higher mortgage balance than a year earlier.

Mortgage Forbearance and Performance on Other Household Debts

We can also use the CCP to examine the relationship between mortgage forbearance and performance on a borrower’s non-housing debts. Doing so, though, requires a slightly longer timeframe. In the chart below, we show that non-mortgage delinquency (which reflects delinquency on auto, credit card, and miscellaneous consumer debt) was persistently higher among those who had at least one month of forbearance since March 2020; indeed, prior to the pandemic this was a group of borrowers whose delinquency rates had not only been high, they had also been on the rise. (We keep student debt out of consideration here since the vast majority of student debt has been in automatic forbearance since the early weeks of the pandemic.) Immediately after March 2020, delinquency on non-housing debts leveled off briefly, but then began increasing again and stood at 5.8 percent in March 2021, a full percentage point higher than it had been one year before. In contrast, delinquency rates for those not in mortgage forbearance were roughly flat during the year ending in March 2021, at about 2 percent.

Thus we have a glass half empty/half full situation: these are clearly distressed borrowers, and mortgage forbearance provided assistance that may well have allowed them to keep their homes. Nonetheless, these borrowers were already struggling with debt repayment prior to the pandemic, and forbearance has not allowed them to close the delinquency gap with other mortgagors; instead that gap has persisted in spite of forbearance.


What Happens during Mortgage Forbearance?

A second dimension of performance, and one that is perhaps especially interesting during the pandemic environment of reduced consumption opportunities, is debt balance paydown. We’ve noted in the past that aggregate credit card balances fell a lot in 2020, and ended the year more than $100 billion below their December 2019 level. This is the largest annual decline in credit card balances for at least two decades, and it continued into the first part of 2021. The accumulation of savings by U.S. households during the pandemic was surely a key factor in this paydown of costly credit card balances. Did mortgage forbearance play a role for those households that received it?

In the next chart, we provide some evidence for that proposition. The chart shows the relative credit card balances for mortgagors who had a forbearance after March 2020 (red) and those who never did (blue). Card balances declined for both groups, but somewhat more steadily for borrowers with forbearances: by March 2021, they had reduced their credit card balances to 23 percent below their March 2020 level. This compares with a 15 percent decline for mortgagors without a forbearance. The dollar amount of credit card paydown is even higher for those with forbearance, since their initial average amount of credit card debt as of March 2020 was significantly higher at $9,000 compared to $6,000 for those without forbearance. As a result, a typical household in mortgage forbearance has reduced its credit card debt by $2,100 over the last year, compared to $900 for a mortgagor not in forbearance.


What Happens during Mortgage Forbearance?

The ability to reduce credit card obligations over the past year has not been equal across different types of mortgage borrowers in forbearance. The next chart shows that the balance decline for neighborhoods outside of the top income quartile has now reached 20 percent below the March 2020 level. In the highest income neighborhoods, which benefited from the largest share of mortgage relief as shown in the previous blog post, credit card balances have fallen more: 30 percent as of March.


What Happens during Mortgage Forbearance?

Conclusion

Our brief review of what happens to borrowers when they’re in forbearance produces some interesting conclusions. First, many previously delinquent borrowers are marked “current” as they enter forbearance, even if they don’t make a payment. As a consequence, credit bureau measures of mortgage delinquency must be viewed cautiously in a period of widespread forbearance. Second, a substantial share, around 30-40 percent, of borrowers who get forbearance nonetheless continue to make payments. This will have implications for our expectations for how delinquency measures will change when forbearance ends. Finally, mortgagors in forbearance have been able to pay down their credit cards faster than those not in forbearance, especially in higher income areas. In our next post, we will shift our focus to a group of mortgage borrowers who stand out from the crowd for a different reason: they own a small business.

Andrew F. HaughwoutAndrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donghoon LeeDonghoon Lee is an officer in the Bank’s Research and Statistics Group.

Joelle ScallyJoelle Scally is a senior data strategist in the Bank’s Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Andrew Haughwout, “What Happens during Mortgage Forbearance?” Federal Reserve Bank of New York Liberty Street Economics, May 19, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/what-happens-durin....

Additional Posts in This Series

Keeping Borrowers Current in a Pandemic

Small Business Owners Turn to Personal Credit

What’s Next for Forborne Borrowers?

Related Reading
Economic Inequality: A Research Series

Press Briefing

Keeping Borrowers Current in a Pandemic

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Keeping Borrowers Current in a Pandemic

Published by Anonymous (not verified) on Tue, 27/07/2021 - 5:56am in

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Keeping Borrowers Current in a Pandemic

Federal government actions in response to the pandemic have taken many forms. One set of policies is intended to reduce the risk that the pandemic will result in a housing market crash and a wave of foreclosures like the one that accompanied the Great Financial Crisis. An important and novel tool employed as part of these policies is mortgage forbearance, which provides borrowers the option to pause or reduce debt service payments during periods of hardship, without marking the loan delinquent on the borrower’s credit report. Widespread take-up of forbearance over the past year has significantly changed the housing finance system in the United States, in different ways for different borrowers. This post is the first of four focusing attention on the effects of mortgage forbearance and the outlook for the mortgage market. Here we use data from the New York Fed’s Consumer Credit Panel (CCP) to examine the effects of these changes on households during the pandemic.

Background: Who Qualifies for COVID-19 Mortgage Forbearance?

Initially, under the CARES Act, borrowers with federally backed mortgages could request up to twelve months of forbearance, made up of two 180-day periods, if they experienced financial hardship because of COVID-19. Several agencies have subsequently granted extensions. Specifically, borrowers with mortgages backed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can request up to two additional three-month extensions (for a maximum of eighteen months of total forbearance) if they were in an active forbearance plan as of February 28, 2021, while borrowers with mortgages backed by the Department of Housing and Urban Development/Federal Housing Administration (HUD/FHA), the U.S. Department of Agriculture (USDA), or the Department of Veterans Affairs (VA) can enroll in forbearance until June 30, 2021, and receive up to eighteen months of total forbearance. At the same time, the CARES Act (section 4013) eased the accounting treatment of pandemic-related modifications for loans in bank portfolios, and the federal banking agencies released guidance to that effect in early April 2020.

How Does Forbearance Work?

Widespread forbearance is a new policy, although similar programs have previously been rolled out on a smaller scale in the wake of natural disasters. Typically, the missed payments will be added to the end of the loan; for a borrower in the first year of a thirty-year mortgage, a forbearance thus amounts to a twenty-nine-year interest-free loan of the forborne amount. These forbearances are safe loans in part because they are incentive-compatible: in order to preserve their housing equity, borrowers must resume payments when they are able. (Note that renters, with no equity in their property, do not have strong incentives to pay back forborne rent payments, making the provision of relief to renters more difficult than to owners.)

Who Entered Forbearance?

As we reported back in November, large numbers of mortgage forbearances began to appear on credit reports in April 2020, and by May 2020, 7 percent of mortgage accounts were in forbearance. By June, however, exits from forbearance began to outweigh entries, and the number of mortgages in forbearance began a slow decline. The following chart shows that by March 2021, the overall forbearance rate had fallen to 4.2 percent, accompanied by reductions in both entries and exits, suggesting a relatively stable group of borrowers in forbearance for a relatively long period of time. In fact, of the 2.2 million mortgages still in forbearance in March 2021, 1.2 million entered forbearance in June 2020 or earlier. (In March, the inflows into forbearance are likely affected by additional payment relief offered in Texas as a response to the effects of the winter storm there.)

Keeping Borrowers Current in a Pandemic

These dynamics—a sharp rise in April and May, followed by a slow decline through the summer and fall—are common across most types of mortgages, but FHA borrowers were considerably more likely to take up mortgage forbearance initially, and have remained in the program longer. As of March 2021, more than 11 percent of FHA borrowers remain in forbearance, as shown below.

Keeping Borrowers Current in a Pandemic

What accounts for the higher forbearance rates for FHA borrowers? FHA borrowers are much more likely to be first-time home buyers and to live in lower-income areas. About 41 percent of FHA borrowers live in neighborhoods with average annual household income below $50,000, compared to 22 percent for GSE borrowers.

With this context, it’s perhaps not surprising to find that forbearance rates rose most, and were most persistent, in lower average income zip codes. As shown in the next chart, forbearance rates in the poorest quartile of zip codes approached 10 percent in May and June 2020 and remain above 5.5 percent at the end of March 2021.

Keeping Borrowers Current in a Pandemic

The likelihood of forbearance falls steadily as borrower credit score (measured at the date of mortgage origination) rises, and it is far higher for loans that were delinquent in March 2020; see the next chart. Indeed, forbearance rates remain near 40 percent for borrowers who were delinquent on their mortgages pre-pandemic. The higher rates of mortgage forbearance in poorer areas and among FHA borrowers is consistent with the uneven impact that COVID-19 and the accompanying recession have had on different segments of the population. Mortgage forbearance has been an important policy tool to mitigate the impact of these challenges faced by less-advantaged households.

Keeping Borrowers Current in a Pandemic

Since housing costs are typically one of the largest household expenses, it isn’t surprising that mortgage forbearance offers very substantial cash flow relief to the households that take it up. The table below provides details on the payment relief that different forbearance participants received. (As we show in a companion post, being enrolled in forbearance isn’t quite the same as receiving cash flow relief.) We estimate this relief using the average payment that was due prior to enrolling in forbearance for those who were enrolled in forbearance as of March 2021. (These figures have been very stable since March 2020, so we don’t show the changes over time here.)

Keeping Borrowers Current in a Pandemic

As the table shows, the average monthly cash flow relief associated with a mortgage forbearance is somewhat different across different mortgage types and grows sharply as neighborhood income rises. Indeed, aggregate cumulative payments skipped by borrowers from the poorest 25 percent of neighborhoods are about 38 percent of those skipped in top-quartile neighborhoods.

All told, in absolute dollar terms, mortgage forbearance has brought the most benefit to the highest-income areas. This is due to a combination of high homeownership and relatively expensive mortgage payments in these areas, which more than offsets the considerably higher incidence of forbearance in lower-income areas. Still, the high rates of forbearance take-up on FHA loans and in poorer zip codes makes clear that these programs have been an important lifeline to less-advantaged households.

Conclusion

We find that mortgage forbearance has been an important policy tool to mitigate the impact of the pandemic and has become a fairly common phenomenon since it became widely available last year. After an initial rapid rise to over 7 percent, the share of mortgages in forbearance has slowly declined and stood at just over 4 percent in late March 2021. Forbearance has been more common for FHA borrowers and mortgagors from poorer neighborhoods, as well as those who were already delinquent in March 2020. In a separate post, we look at how being in forbearance affects borrowers, and continue to look at the distribution of those effects.

Andrew F. HaughwoutAndrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donghoon LeeDonghoon Lee is an officer in the Bank’s Research and Statistics Group.

Joelle ScallyJoelle Scally is a senior data strategist in the Bank’s Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, “Keeping Borrowers Current in a Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, May 19, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/keeping-borrowers-....

Additional Posts in This Series

What Happens during Mortgage Forbearance?

Small Business Owners Turn to Personal Credit

What’s Next for Forborne Borrowers?

Related Reading
Economic Inequality: A Research Series

Press Briefing

Keeping Borrowers Current in a Pandemic

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Mortgage Rates Decline and (Prime) Households Take Advantage

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:39am in

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

LSE_2021_HDC_mortgage_scally_460_art

Today, the New York Fed’s
Center for Microeconomic Data
reported that household debt balances increased by $206 billion in the fourth quarter of 2020, marking a $414 billion increase since the end of 2019. But the COVID pandemic and ensuing recession have marked an end to the dynamics in household borrowing that have characterized the expansion since the Great Recession, which included robust growth in auto and student loans, while mortgage and credit card balances grew more slowly. As the pandemic took hold, these dynamics were altered. One shift in 2020 was a larger bump up in mortgage balances. Mortgage balances grew by $182 billion, the biggest quarterly uptick since 2007, boosted by historically high volumes of originations. Here, we take a close look at the composition of mortgage originations, which neared $1.2 trillion in the fourth quarter of 2020, the highest single-quarter volume seen since our series begins in 2000. The Quarterly Report on Household Debt and Credit and this analysis are based on the New York Fed’s Consumer Credit Panel, which is itself based on anonymized Equifax credit data.

In the first chart, we look at a figure direct from the Quarterly Report: total mortgage originations by credit score band. Here, the boom in originations is starkly visible—originations to the highest credit score borrowers rose sharply during 2020. (We use the Equifax Risk Score 3.0). The origination volume in the fourth quarter of 2020 just surpassed the previous high, from 2003, when a dip in mortgage interest rates prompted a boom in mortgage refinancing. Although these two bumps in mortgage originations are similar in magnitude, the composition is quite different; 71 percent of originations in the fourth quarter of 2020 went to borrowers with credit scores over 760, while in the third quarter of 2003, only 31 percent of those new mortgages went to the most creditworthy borrowers. Researchers have concluded that the 2003 refi boom had long-running consequences, contributing to over-leveraged balance sheets as home prices fell.

LSE_2021_HDC-mortgage_scally_ch1-03

Purchases or Refis?

Refinances do tend to go to higher-credit-score borrowers, compared to purchase mortgages—this is because those who are refinancing already have a mortgage that they’ve been repaying for some time and are building their credit history. Thus, this high volume of superprime mortgage originations suggests we are in the midst of another refinance boom. And homeowners are taking advantage of the mortgage interest rates at historic lows, even taking some cash out with their refinanced mortgages. In the following chart, we break out mortgage originations into purchase and refinances. The origination boom in 2020 is owing to a confluence of high refinance originations as well as high purchase originations—in fact, in nominal terms, the level of purchase originations nears that seen in 2006. As for the increasing level of purchase originations, it’s consistent with high levels of home sales paired with increasing prices. Overall, refinance originations in 2020 were at their highest level since 2003. Although about 15 percent below the 2003 level in terms of nominal aggregate debt, some 7.2 million mortgages were refinanced in 2020, which was less than half the 2003 count (15 million!).

LSE_2021_HDC-mortgage_scally_ch2-02

Who’s Buying? Looking Into Purchase Originations

Although it is difficult to compare the volume of purchase originations with the levels seen in 2005-06 due to differences in home prices, the trend was unmistakably increasing this year, and to a high level. In the following chart, we break purchases out into three groups: (1) first-time homebuyers, or those whose origination marks the first mortgage on their credit report, shown in blue; (2) repeat buyers – individuals who are making a purchase that is not their first, shown in red; and (3) second home buyers and investors—those who have a new origination with one or more first mortgages already on their credit report. The boom years preceding the Great Recession—which similarly saw a brisk pace of mortgage originations, had the three lines at roughly equal volumes for several quarters. And then as house prices began to decline and the market began to crash, it was first-time buyers who were able to come in at a higher rate—incentivized by first-time homebuyer credits in the Housing and Economic Recovery Act, as well as declining interest rates and home prices. But during the slow recovery in originations in the past eight years, the first time and repeat buyer lines have essentially tracked each other, while second home and investor purchases have trailed, only picking up slightly in the past year.

LSE_2021_HDC-mortgage_scally_ch3-01

2020 Vintage Remains Very High Quality

As we describe above, the bulk of newly originated mortgages are going to borrowers with the highest credit score. But is this because of the volume of refinance originations? In the final chart, below, we look at the median credit score of newly originated mortgages, by type. Refinanced mortgages typically go to higher score borrowers than purchase mortgages, due to their established repayment histories. However, when we break out purchasers into first-time and repeat buyers, we see that the median credit scores are quite close for refinancers and repeat buyers, while the first-time buyers have lower credit scores, and always have. The median credit score of refinancers and repeat buyers was just below 800 at the end of 2020, about 60 points higher than that of first-time buyers. With a look to the series history, new mortgages are more prime—for even first-time buyers, median credit scores have slowly drifted up since 2002-06, when they hovered in the high 600s.

LSE_2021_HDC-mortgage_scally_ch4-02


Cha-Ching! Cashing Out Home Equity When the Rates Make Sense

With refinances picking up in 2020, we look to see whether consumers are cashing out, and drawing against their home equity. In the chart below, we show the quarterly cashout refinance volume, which is calculated as the difference between the borrowers’ new mortgages and the mortgages that the refinances replaced. Keeping in mind that the data we present here are not adjusted for inflation, cashout refinance volume is still notably smaller than what was seen between 2003-06. However, we do see a notable increase in cashout refinance volumes, which spiked in the fourth quarter of 2020 and show no sign of abating. Homeowners withdrew $188 billion in home equity over the course of 2020. One important note though—although this is a big increase, it’s also associated with lower average cashout amounts. Borrowers who refinanced in 2019 withdrew, on average, an additional $49,000; while borrowers who refinanced in 2020 withdrew, on average, $27,000. The median cashout withdrawal in 2020 was only $6,700, suggesting that at least half of the refinancers borrowed only enough additional funds to cover the closing costs on the new mortgage. Still, a substantial minority of refinancers took out some cash from their property, which they can use to fund consumption or other investment opportunities, including home improvements. Meanwhile, borrowers who did not choose to take out extra cash saw an average savings of $200 on their monthly mortgage payment, improving their monthly household cash flow.

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What To Look For Going Forward

Support for households who have suffered job and income losses has been a key feature of the CARES Act, through both the direct financial transfers to households as well as the moratoria on Federally backed mortgages and student loans. Meanwhile, many households are taking advantage of the historically low mortgage interest rates that are a consequence of the supportive monetary policy. It will be interesting to see whether households will maintain these high rates of home purchases and refinances into 2021 and more generally how households will adjust their balance sheets depending, in part, on whether and how long forbearances continue on payments on federally backed mortgages and student loans.

Chart data

Haughwout_andrewAndrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Lee_donghoonDonghoon Lee is an officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

Scally_joelleJoelle Scally is a senior data strategist in the Bank’s Research and Statistics Group.

Vanderklaauw_wilbertWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, “Mortgage Rates Decline and (Prime) Households Take Advantage,” Federal Reserve Bank of New York Liberty Street Economics, February 17, 2021, https://libertystreeteconomics.newyorkfed.org/2021/02/mortgage-rates-dec....

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Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

Who Pays What First? Debt Prioritization during the COVID Pandemic

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:37am in

William J. Arnesen, Jacob Conway, and Matthew Plosser

Who Pays What First? Debt Prioritization during the COVID Pandemic

Since the depths of the Great Recession, household debt has increased from a low of $11 trillion in 2013 to more than $14 trillion in 2020 (see the New York Fed Household Debt and Credit Report). In this post, we examine how consumers’ repayment priorities have evolved over that time. Specifically, we seek to answer the following question: When consumers repay some but not all of their loans, which types do they choose to keep paying and which do they fall behind on?

We use data from the New York Fed’s Consumer Credit Panel to construct a “head-to-head conflict” among different types of debt. In other words, if a consumer chooses to repay all of their auto loans, while defaulting on their consumer debt, that would constitute a “win” for auto loans over consumer debt. We then run a logistic regression to predict the overall strength of each debt type, focusing on three categories: auto loans, mortgages, and consumer debt (we have excluded student debt from the analysis because substantial changes in repayment rules—such as the dramatic rise of income-based repayment plans—might make comparisons over the full twenty-year period difficult.

The chart below illustrates repayment prioritization over the last twenty years (because of the rise in mandatory and voluntary forbearance programs during the COVID pandemic, we exclude 2020 data). The y-axis represents the probability that a given form of debt will be repaid over consumer debt (which includes bank card, consumer finance, and retail trade debt) when a consumer must choose to fall behind on at least one form of debt. Two dominant patterns emerge. The first, as previously explored in a Liberty Street Economics blog post, is that mortgage prioritization collapsed during the 2008 financial crisis, before steadily climbing back to its previous peak in the last few years.

Who Pays What First? Debt Prioritization during the COVID Pandemic

The Decline of Auto Prioritization Rates

The second dominant pattern is that in the last fifteen years auto loan prioritization has inexorably declined, falling far below parity with mortgages by 2020. The intersection of the mortgage (gold) and auto (gray) lines implies that consumers are equally likely to choose to repay their mortgage or their auto loans when they only repay one. This trend parallels a previously reported surge in outstanding subprime auto debt and a consequent increase in default rates.

One reason is the growth in borrowers with multiple auto loans. The chart above makes clear that those with multiple loans (blue line) prioritize auto payment even less than those with a single car loan (red line). Presumably, the potential loss of one’s second car is less devastating than the loss of one’s only vehicle. As seen in the chart below, the share of borrowers taking out multiple auto loans has increased roughly 72 percent over the sample period. However, compositional shifts toward multi-auto loan borrowing cannot explain the full decline, as rates of prioritization within the single-loan and multi-loan cohorts have fallen. Indeed, increased frequency of multiple-auto borrowers can explain roughly 40 percent of the decline in the overall auto prioritization decline pre-2007, but only 10 percent of the decline after 2007.

Who Pays What First? Debt Prioritization during the COVID Pandemic

We investigate several other factors, none of which are sufficient to explain the decline in isolation. The first is an aging population; older adults tend to drive less and consequently de-prioritize auto loan repayment. The share of elderly auto-loan borrowers (75+) has grown, topping out at 4.5 percent in 2020 vs 2.5 percent in 2007. Hence aging can explain only a small fraction of the overall trend.

We also investigate urbanization patterns. Borrowers in highly urbanized census tracts hold similar priorities to borrowers in rural tracts, despite the potentially higher levels of access to alternative forms of transportation.

Finally, we investigate changes in lending standards. Empirically, we don’t see a substantial difference in prioritization scores between borrowers with low credit scores at the time of their first loan and those with higher credit scores (see chart below), making it an unlikely culprit. So while credit score may predict default, it does not appear to have much bearing on households’ prioritization conditional on default.

One avenue for future exploration might be to examine the relationship between prioritization and changes in interest rates. It is possible that borrowers with higher rates might choose to prioritize those debts for fear of the heightened consequences of falling further behind. Indeed, according to data from the Federal Reserve, the average interest rate on a new 48-month auto loan from a commercial bank has declined from 6.61 percent in August 2009 to 4.98 percent in August 2020 whereas credit card rates have risen from 13.71 percent to 14.58 percent over the same time period.

Who Pays What First? Debt Prioritization during the COVID Pandemic<br />

Takeaways

Household debt prioritization has been surprisingly dynamic over the past twenty years. A key factor appears to be the value of the underlying collateral to the household. Low home equity reduced the incentive to prioritize mortgage debt following the Great Recession and the growing prevalence of a second car loan lowered the importance of remaining current on the additional automobile. However, other factors, including demographics and relative pricing, also appear to influence households’ decisions. We hope to further understand these forces in future research.

William J. Arnesen is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Jacob Conway is a Ph.D. candidate in economics at Stanford University and a former senior research analyst at the New York Fed.

Plosser_matthewMatthew Plosser is an officer in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:

William J. Arnesen, Jacob Conway, and Matthew Plosser, “Who Pays What First? Debt Prioritization during the COVID Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, March 29, 2021, https://libertystreeteconomics.newyorkfed.org/2021/03/who-pays-what-firs....

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Disclaimer

Conway’s contributions are based upon work supported by the National Science Foundation Graduate Research Fellowship Program under Grant No. DGE-1656518. Any opinions, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation, or the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Do People View Housing as a Good Investment and Why?

Published by Anonymous (not verified) on Thu, 17/06/2021 - 12:36am in

Andrew Haughwout, Haoyang Liu, Dean Parker, and Xiaohan Zhang

LSE_2021_jr-sce-housing_liu_460

Housing represents the largest asset owned by most households and is a major means of wealth accumulation, particularly for the middle class. Yet there is limited understanding of how households view housing as an investment relative to financial assets, in part because of their differences beyond the usual risk and return trade-off. Housing offers households an accessible source of leverage and a commitment device for saving through an amortization schedule. For an owner-occupied residence, it also provides stability and hedges for rising housing costs. On the other hand, housing is much less liquid than financial assets and it also requires more time to manage. In this post, we use data from our just released SCE Housing Survey to answer several questions about how households view this choice: Do households view housing as a good investment choice in comparison to financial assets, such as stocks? Are there cross-sectional differences in preferences for housing as an investment? What are the factors households consider when making an investment choice between housing and financial assets?

Exploring Survey Data

We study these questions using a novel survey on households’ preferences for housing as an investment relative to investing in the stock market, and rationales behind their choices. In our survey, respondents are prompted to advise a couple in their early 30s from their zip code, after receiving a gift the size of a down payment, whether to invest in housing or the U.S. stock market. The question is framed in two ways, one asks if the young couple should buy a primary residence or invest in the stock market, and a second assumes the couple already has a primary home and asks whether they should consider buying a rental property or investing in stocks. Each respondent randomly receives one of the two framings. After reporting their recommendations, respondents are asked to select reasons behind their answers from a menu of reasons including, for example, stocks having higher returns, housing with lower volatility, commitment device for savings, or they can supply their own reasons. These survey questions were run in February 2020 (largely before the COVID-19 outbreak in the U.S.), October 2020, and February 2021. We report the following results:

Households View Housing as a Good Investment

The chart below plots the shares of household recommendations over time. We can see that in general, households view housing as a good investment in comparison to the stock market. When asked to choose between investing in a rental property or the overall stock market, more than 50 percent of the households recommended housing in all three administrations of the survey. In the primary residence versus stock market framing, preference for housing is even stronger with more than 90 percent of the survey respondents choosing housing. One interesting pattern is that the preference for housing dipped in October 2020 and returned back to the pre-COVID level by February 2021. Using reasons cited for these choices, we found that this shift away from housing in October 2020 wasn’t driven by lower home price expectations, but reflects other reasons. For example, investors were more worried about the risk of vacant rental units. For buying a primary residence, our survey respondents put less value on the stability provided by an owner-occupied home after the COVID-19 outbreak, potentially because of concerns about making mortgage payments or shortened expected tenure to stay at the current home.


Do People View Housing as a Good Investment and Why?

Cross-Sectional Differences in Viewing Housing as an Investment

We next examine important cross-sectional variation in households’ views of housing as an investment. Two strong predictors for investment recommendations are gender and education. For this analysis, we focus on the rental housing versus stocks framing. The next chart shows that women and non-college graduates have a stronger preference for housing than others do. For the gender gap, part of the explanation is that men in our sample are more risk-taking than women and are more willing to invest in the stock market, where returns are perceived as more volatile. For the education gap, college graduates tend to expect higher returns in the stock market than in housing and cite “time to manage a rental property” as one reason for choosing the stock market. We also note that these gender and education gaps were substantially reduced in the October 2020 survey, as women and non-college graduates temporarily shifted away from housing. In future work, we intend to study factors behind the gender and education gaps in preference for housing, and why they were temporarily reduced during the COVID-19 outbreak.


Do People View Housing as a Good Investment and Why?


Reasons for Choosing Housing

Turning to reasons cited by the survey respondents for choosing housing, the next chart shows the percentage of respondents selecting each reason for recommending a primary residence over investing in the stock market. Respondents can select multiple reasons. We can see that there is a reasonable share of respondents choosing each of the reasons. “Desired Living Environment and Provides Stability” and “Housing Prices Less Volatile” are among the most commonly selected. Compared to the 2020 responses, in 2021 more survey respondents selected higher house prices and lower volatility, and fewer respondents selected any of the other reasons, including for example, saving from rent, stability, locking in housing costs, and the amortization schedule as a commitment device for saving.


Do People View Housing as a Good Investment and Why?

Conclusion

Housing is an important asset class for middle-class households. Using a novel survey fielded before and during the COVID-19 outbreak, we show that investors view housing—both rental properties and primary residences—as a good investment relative to the aggregate stock market. There are important variations in preferences for housing, with women and non-college graduates being more likely to recommend housing. Relative to before the COVID-19 outbreak, more households now cite higher returns and lower volatility as reasons to buy a primary residence.

Chart data

Haughwout_andrewAndrew Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Liu_haoyangHaoyang Liu is an economist in the Bank’s Research and Statistics Group.

Dean Parker is a senior research analyst in the Bank’s Research and Statistics Group.

Xiaohan Zhang is an assistant professor at California State University-Los Angeles.

How to cite this post:

Andrew Haughwout, Haoyang Liu, Dean Parker, and Xiaohan Zhang, “Do People View Housing as a Good Investment and Why?,” Federal Reserve Bank of New York Liberty Street Economics, April 5, 2021, https://libertystreeteconomics.newyorkfed.org/2021/04/do-people-view-hou....
Related Reading

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Mapping Home Price Changes – data visualization

Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Published by Anonymous (not verified) on Thu, 20/05/2021 - 9:00pm in

Tags 

Credit, mortgages

Jessica Lu and Wilbert van der Klaauw

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

It is common during recessions to observe significant slowdowns in credit flows to consumers. It is more difficult to establish how much of these declines are the consequence of a decrease in credit demand versus a tightening in supply. In this post, we draw on survey data to examine how consumer credit demand and supply have changed since the start of the COVID-19 pandemic. The evidence reveals a clear initial decline and recent rebound in consumer credit demand. We also observe a modest but persistent tightening in credit supply during the pandemic, especially for credit cards. Mortgage refinance applications are the main exception to this general pattern, showing a steep increase in demand and some easing in availability. Despite tightened standards, we find no evidence of a meaningful increase in unmet credit need.

Demand and Supply of Household Credit during a Recession

How would one generally expect credit flows to consumers to change during a recession? To the extent that households perceive declines in income and wealth as permanent, they may lower current consumption and demand for debt. Similarly, an increase in uncertainty can depress consumption and increase precautionary or “buffer-stock” saving, reducing demand for credit. On the other hand, during recessions households may optimally respond to a temporary negative income shock by drawing on new and existing credit in order to smooth consumption.

On the supply side, access to credit may become more difficult during recessions due to a rise in lender risk aversion or a reduction in collateral values. Lenders may be concerned that a recession and higher unemployment could trigger a sharp rise in loan defaults, and this concern may cause them to tighten credit standards. With lenders requiring higher credit scores, more income documentation, and reduced credit limits on new and existing loans, households may find it harder to obtain credit when they most need it.

While we expect these factors to play similar roles in the current recession, the pandemic and the public health and policy responses resulted in an economic downturn with different characteristics and dynamics than prior recessions. The recession was unique in the speed with which it took hold, the types of workers it affected, and the nature and size of the policy response. In an economy with reduced consumption opportunities (especially services) due to lockdowns, a huge decline in employment was accompanied by a steep decline in spending, but also a jump in the personal savings rate to a record high, as personal income surged in response to policy measures.

Using the SCE to Measure Demand for Credit

Our analysis draws on data from the Survey of Consumer Expectations (SCE) Credit Access Survey. The survey has queried respondents every four months since October 2013 about their experiences and expectations of applying for and obtaining credit. Our data differ from existing data sources in several important ways. First, unlike existing sources such as the Senior Loan Officer Opinion Survey (SLOOS), our survey captures realized and expected credit demand as reported by consumers instead of lenders. Second, we measure credit applications and rejections separately for different types of consumer loans, including mortgages, auto loans, and credit cards. Third, besides realized and expected credit demand, we identify “discouraged credit seekers”—respondents who report not applying for credit over the past twelve months despite needing it, because they believed they wouldn’t be approved.

In this post, we introduce a new, more forward-looking gauge of unmet need based on a new measure of latent credit demand. Specifically, starting in October 2016 we began asking respondents for the probability that they will apply for credit over the next twelve months if their application is guaranteed to be approved. Our new measure of unmet need is then defined as the difference between their answer to this question and their reported unconditional probability of applying over the next twelve months.

Application and Rejection Rates

The overall share of respondents who reported applying for any type of credit over the past year shows a v-shaped pattern after the onset of the pandemic, as shown in the chart below. After the share of those who reported applying fell from 45.6 percent in February 2020 to 39.2 percent in June and to a series low of 34.6 percent in October, we see a robust rebound in February 2021 to an application rate of 44.8 percent, just below its pre-pandemic value. We see a similar pattern for credit card application rates, which fell from 26.3 percent in February 2020 to 15.7 percent in October, though with a smaller rebound in February 2021 to 19.4 percent, still well below pre-pandemic levels. Requests for credit card limit increases (not shown) evolved comparably. Auto loan and mortgage application rates (not shown) were relatively more stable and in February 2021 were just above their year-ago levels.

The big outlier in these reported trends is a dramatic increase among mortgagors in mortgage refinance applications during the pandemic, with many mortgage loan borrowers taking advantage of low interest rates. In February 2021, 24.6 percent of mortgagors reported applying for a refinance over the past twelve months, compared to only 10.8 percent a year earlier.

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Among those who applied for any type of credit, the share reporting a rejection has increased monotonically since the onset of the pandemic, from 14.2 percent in February 2020 to 18.5 percent in February 2021. As shown in the next chart, the increase was relatively modest and within the range of changes observed in our series’ history. The rejection rate for credit card applicants shows a somewhat more noticeable increase, rising from a series low of 9.7 percent in February 2020 to a series high of 26.3 percent a year later—a 170 percent increase. Rejections of requests for credit limit increases (not shown) follow the same trajectory—reaching a new high of 40.3 percent in February 2021. The reported rejection rates for auto loan and mortgage applicants (not shown) follow less of a clear pattern over the past year.

Rejections reported by mortgage refinance applicants initially declined, but then rebounded somewhat in February 2021 to 12.2 percent, remaining below the 15.8 percent reading a year earlier. The steep increase in demand and some easing in available credit is consistent with the general strength of the housing market and historically high levels of home equity. These findings from our survey are largely consistent with indicators of credit demand and credit tightening reported by loan officers in the SLOOS.

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

When distinguishing respondents by age and credit score, we find that the patterns in application and rejection rates described above are largely broad-based across age and credit score groups, with two exceptions. First, the February 2021 rebound in application rates is generally much larger for respondents with self-reported credit scores between 680 and 760, aside from mortgage refinances, where the largest increase is among those with scores of 760 or higher. Second, the increase in the reported overall rejection rate during the pandemic was by far the largest for those with low credit scores (680 or below).

Two New Measures of Unmet Credit Demand

Turning now to our two alternative measures of latent credit demand (or unmet need), we first consider our backward-looking measure (shown in the left panel below). The share of discouraged borrowers, which we define as respondents who reported not applying for a loan (despite having a need for it) because they expected their application to be rejected, initially remained stable at 6.9 percent from February to June of 2020, rose slightly to 7.2 percent in October, and then fell to 6.1 percent in February 2021. Interestingly, this overall pattern masks a decline in borrower discouragement among those aged 40 and under and 60 and over, with the rate for the middle-age group increasing somewhat from 6.1 percent in February 2020 to 9.1 percent a year later. Similarly, we see an increase in discouraged borrowing among those with credit scores of 680 and below (from 21.6 percent to 28.1 percent), while seeing a slight decrease for those with higher scores.

Consumer Credit Demand, Supply, and Unmet Need during the Pandemic

Finally, we turn to our second alternative measure of latent credit demand, our forward-looking measure, available since October 2016. We first find that expected credit applications, both unconditional and conditional upon guaranteed acceptance, declined following the onset of the pandemic and more recently have experienced a considerable rebound. The initial decline in expected demand, even under guaranteed acceptance, substantiates our earlier finding of a general decrease in credit demand during the first eight months of the pandemic. Considering the difference between the two expected application rates—our indicator of unmet credit need—we find, as expected, that the gap is persistently positive, indicating a lower unconditional expected application rate due to a non-negative probability that the application will be rejected.

The panel on right above shows a simple unweighted average of the gap for mortgage, credit card, auto loan, credit limits, and mortgage refinance applications. After the onset of the pandemic, there is a slight decline in unmet credit need across all loan types, with the important exception of mortgage refinance applications. In contrast to our backward-looking measure of unmet credit (which does not distinguish between loan types), here for most loan types we find the decline in unmet need to be the largest for those with low credit scores (under 680). For mortgage refinancing (not shown), we see instead a slight rise among mortgagors in unmet need from 6.1 percent in February 2020 to 7.3 percent in June and 9.1 percent in October. However, by February 2021 the gap had narrowed to 5.5 percent. As was the case for the backward-looking measure, the increase in unmet need for refinancing is the largest for those with lower credit scores (below 680).

Conclusion

In this post, we used new data from the SCE Credit Access Survey to study the evolution of consumer credit demand and supply during the COVID-19 recession. We find that credit demand dropped sharply during most of 2020, especially for credit cards, with a modest rebound observed by February 2021. We also observe a modest increase in credit rejection rates during 2020, especially for credit cards. Despite this credit tightening and increased unemployment, we see no meaningful increase in discouraged borrowing and unmet credit need. Mortgage refinancing is the main exception to this general pattern, showing a steep increase in demand and some increase in unmet need, especially for those with lower credit scores.

These overall results likely evince the impact of large fiscal interventions, including stimulus checks and expanded unemployment insurance benefits, which have enabled many households to pay down debt, especially credit card debt, and increase their saving. Even among those with low credit scores, while unmet credit needs remain formidable, instead of an increase in expected unmet need we actually see a decline for the group for which unmet need is typically high. The only clear evidence of an increase in unmet credit needs is found for mortgage refinancing, where lower credit score mortgagors have been less able to take advantage of the low-rate environment.

Jessica Lu is a senior research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Jessica Lu and Wilbert van der Klaauw, “Consumer Credit Demand, Supply, and Unmet Need during the Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, May 20, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/consumer-credit-de....




Disclaimer

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.

What Happens during Mortgage Forbearance?

Published by Anonymous (not verified) on Thu, 20/05/2021 - 1:46am in

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

What Happens during Mortgage Forbearance?

As we discussed in our previous post, millions of mortgage borrowers have entered forbearance since the beginning of the pandemic, and more than 2 million remain in a program as of March 2021. In this post, we use our Consumer Credit Panel (CCP) data to examine borrower behavior while in forbearance. The credit bureau data are ideal for this purpose because they allow us to follow borrowers over time, and to connect developments on the mortgage with those on other credit products. We find that forbearance results in reduced mortgage delinquencies and is associated with increased paydown of other debts, suggesting that these programs have significantly improved the financial positions of the borrowers who received them.

Forbearance and Mortgage Delinquency

Since March 2020, we have observed more than 6.1 million mortgagors enter forbearance. As noted in our previous post, these forbearance participants were much more likely to be delinquent prior to the pandemic than the general population of mortgagors. One of the benefits of forbearance for these previously delinquent borrowers is that commencement of forbearance is often coincident with a “cure”: a change in mortgage status to “current.” That is, for many borrowers, mortgage delinquencies are wiped away as the borrower enters forbearance, at least temporarily. (These status changes come without evidence of payment, supporting the conclusion that the cure is the result of an administrative change rather than a true cure. Mortgage servicer reports to investors, as opposed to credit bureaus, show these loans as delinquent. Importantly, however, these investor reports do not affect borrower credit histories.)

The first chart below shows the credit bureau reporting of mortgage status for those that entered forbearance by May 2020. Around 8 percent of the mortgages were already delinquent before entering forbearance. A great majority of those accounts that were previously delinquent are reported as “current” while in forbearance, some of them by making payments and some without one. A minority—about 30 percent of the previously delinquent accounts—retain this delinquent status throughout the period. These varying treatments upon entry into forbearance seem to depend on servicer practices. As such, current foreclosure data and delinquency statistics drawn from credit bureau data do not accurately give a clear indication of housing market stresses.

What Happens during Mortgage Forbearance?

At the same time, neither does the rate of forbearance itself. Why? Because a large share of mortgagors in forbearance actually continue to make their monthly mortgage payments. Indeed, the share of borrowers who continue to make payments while in forbearance is surprisingly high: in each month since June 2020, between 30 and 40 percent of the borrowers in forbearance have made their monthly payment.

This behavior suggests that some borrowers have taken advantage of the forbearance program and skipped payments while others have applied for forbearance as an “insurance policy” against which they are not making claims, and they are reducing their balances each month as originally anticipated in the mortgage contract.

But for the 60-70 percent of forbearance borrowers who are not making payments, mortgage balances aren’t falling. In 2019, mortgagors paid off approximately 4 percent of mortgage balances by making their regular payments. By contrast, borrowers in forbearance have seen their balances increase by 1-2 percent over the course of the last year as the automatic amortization that comes from making the mortgage payment has been largely absent and the interest component of the skipped payment is added back to the balance as well. As of March 2021, among the 5 million borrowers who have taken forbearance for at least one month since the pandemic and haven’t prepaid, about 26 percent have a higher mortgage balance than a year earlier.

Mortgage Forbearance and Performance on Other Household Debts

We can also use the CCP to examine the relationship between mortgage forbearance and performance on a borrower’s non-housing debts. Doing so, though, requires a slightly longer timeframe. In the chart below, we show that non-mortgage delinquency (which reflects delinquency on auto, credit card, and miscellaneous consumer debt) was persistently higher among those who had at least one month of forbearance since March 2020; indeed, prior to the pandemic this was a group of borrowers whose delinquency rates had not only been high, they had also been on the rise. (We keep student debt out of consideration here since the vast majority of student debt has been in automatic forbearance since the early weeks of the pandemic.) Immediately after March 2020, delinquency on non-housing debts leveled off briefly, but then began increasing again and stood at 5.8 percent in March 2021, a full percentage point higher than it had been one year before. In contrast, delinquency rates for those not in mortgage forbearance were roughly flat during the year ending in March 2021, at about 2 percent.

Thus we have a glass half empty/half full situation: these are clearly distressed borrowers, and mortgage forbearance provided assistance that may well have allowed them to keep their homes. Nonetheless, these borrowers were already struggling with debt repayment prior to the pandemic, and forbearance has not allowed them to close the delinquency gap with other mortgagors; instead that gap has persisted in spite of forbearance.

What Happens during Mortgage Forbearance?

A second dimension of performance, and one that is perhaps especially interesting during the pandemic environment of reduced consumption opportunities, is debt balance paydown. We’ve noted in the past that aggregate credit card balances fell a lot in 2020, and ended the year more than $100 billion below their December 2019 level. This is the largest annual decline in credit card balances for at least two decades, and it continued into the first part of 2021. The accumulation of savings by U.S. households during the pandemic was surely a key factor in this paydown of costly credit card balances. Did mortgage forbearance play a role for those households that received it?

In the next chart, we provide some evidence for that proposition. The chart shows the relative credit card balances for mortgagors who had a forbearance after March 2020 (red) and those who never did (blue). Card balances declined for both groups, but somewhat more steadily for borrowers with forbearances: by March 2021, they had reduced their credit card balances to 23 percent below their March 2020 level. This compares with a 15 percent decline for mortgagors without a forbearance. The dollar amount of credit card paydown is even higher for those with forbearance, since their initial average amount of credit card debt as of March 2020 was significantly higher at $9,000 compared to $6,000 for those without forbearance. As a result, a typical household in mortgage forbearance has reduced its credit card debt by $2,100 over the last year, compared to $900 for a mortgagor not in forbearance.

What Happens during Mortgage Forbearance?

The ability to reduce credit card obligations over the past year has not been equal across different types of mortgage borrowers in forbearance. The next chart shows that the balance decline for neighborhoods outside of the top income quartile has now reached 20 percent below the March 2020 level. In the highest income neighborhoods, which benefited from the largest share of mortgage relief as shown in the previous blog post, credit card balances have fallen more: 30 percent as of March.

What Happens during Mortgage Forbearance?

Conclusion

Our brief review of what happens to borrowers when they’re in forbearance produces some interesting conclusions. First, many previously delinquent borrowers are marked “current” as they enter forbearance, even if they don’t make a payment. As a consequence, credit bureau measures of mortgage delinquency must be viewed cautiously in a period of widespread forbearance. Second, a substantial share, around 30-40 percent, of borrowers who get forbearance nonetheless continue to make payments. This will have implications for our expectations for how delinquency measures will change when forbearance ends. Finally, mortgagors in forbearance have been able to pay down their credit cards faster than those not in forbearance, especially in higher income areas. In our next post, we will shift our focus to a group of mortgage borrowers who stand out from the crowd for a different reason: they own a small business.

Andrew F. HaughwoutAndrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donghoon LeeDonghoon Lee is an officer in the Bank’s Research and Statistics Group.

Joelle ScallyJoelle Scally is a senior data strategist in the Bank's Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Andrew Haughwout, “What Happens during Mortgage Forbearance?” Federal Reserve Bank of New York Liberty Street Economics, May 19, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/what-happens-durin....

Additional Posts in This Series

Keeping Borrowers Current in a Pandemic



Small Business Owners Turn to Personal Credit



What’s Next for Forborne Borrowers?




Related Reading

Economic Inequality: A Research Series




Press Briefing


Keeping Borrowers Current in a Pandemic







Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

Keeping Borrowers Current in a Pandemic

Published by Anonymous (not verified) on Thu, 20/05/2021 - 1:45am in

Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw

Keeping Borrowers Current in a Pandemic

Federal government actions in response to the pandemic have taken many forms. One set of policies is intended to reduce the risk that the pandemic will result in a housing market crash and a wave of foreclosures like the one that accompanied the Great Financial Crisis. An important and novel tool employed as part of these policies is mortgage forbearance, which provides borrowers the option to pause or reduce debt service payments during periods of hardship, without marking the loan delinquent on the borrower’s credit report. Widespread take-up of forbearance over the past year has significantly changed the housing finance system in the United States, in different ways for different borrowers. This post is the first of four focusing attention on the effects of mortgage forbearance and the outlook for the mortgage market. Here we use data from the New York Fed’s Consumer Credit Panel (CCP) to examine the effects of these changes on households during the pandemic.

Background: Who Qualifies for COVID-19 Mortgage Forbearance?

Initially, under the CARES Act, borrowers with federally backed mortgages could request up to twelve months of forbearance, made up of two 180-day periods, if they experienced financial hardship because of COVID-19. Several agencies have subsequently granted extensions. Specifically, borrowers with mortgages backed by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac can request up to two additional three-month extensions (for a maximum of eighteen months of total forbearance) if they were in an active forbearance plan as of February 28, 2021, while borrowers with mortgages backed by the Department of Housing and Urban Development/Federal Housing Administration (HUD/FHA), the U.S. Department of Agriculture (USDA), or the Department of Veterans Affairs (VA) can enroll in forbearance until June 30, 2021, and receive up to eighteen months of total forbearance. At the same time, the CARES Act (section 4013) eased the accounting treatment of pandemic-related modifications for loans in bank portfolios, and the federal banking agencies released guidance to that effect in early April 2020.

How Does Forbearance Work?

Widespread forbearance is a new policy, although similar programs have previously been rolled out on a smaller scale in the wake of natural disasters. Typically, the missed payments will be added to the end of the loan; for a borrower in the first year of a thirty-year mortgage, a forbearance thus amounts to a twenty-nine-year interest-free loan of the forborne amount. These forbearances are safe loans in part because they are incentive-compatible: in order to preserve their housing equity, borrowers must resume payments when they are able. (Note that renters, with no equity in their property, do not have strong incentives to pay back forborne rent payments, making the provision of relief to renters more difficult than to owners.)

Who Entered Forbearance?

As we reported back in November, large numbers of mortgage forbearances began to appear on credit reports in April 2020, and by May 2020, 7 percent of mortgage accounts were in forbearance. By June, however, exits from forbearance began to outweigh entries, and the number of mortgages in forbearance began a slow decline. The following chart shows that by March 2021, the overall forbearance rate had fallen to 4.2 percent, accompanied by reductions in both entries and exits, suggesting a relatively stable group of borrowers in forbearance for a relatively long period of time. In fact, of the 2.2 million mortgages still in forbearance in March 2021, 1.2 million entered forbearance in June 2020 or earlier. (In March, the inflows into forbearance are likely affected by additional payment relief offered in Texas as a response to the effects of the winter storm there.)

Keeping Borrowers Current in a Pandemic

These dynamics—a sharp rise in April and May, followed by a slow decline through the summer and fall—are common across most types of mortgages, but FHA borrowers were considerably more likely to take up mortgage forbearance initially, and have remained in the program longer. As of March 2021, more than 11 percent of FHA borrowers remain in forbearance, as shown below.

Keeping Borrowers Current in a Pandemic

What accounts for the higher forbearance rates for FHA borrowers? FHA borrowers are much more likely to be first-time home buyers and to live in lower-income areas. About 41 percent of FHA borrowers live in neighborhoods with average annual household income below $50,000, compared to 22 percent for GSE borrowers.

With this context, it’s perhaps not surprising to find that forbearance rates rose most, and were most persistent, in lower average income zip codes. As shown in the next chart, forbearance rates in the poorest quartile of zip codes approached 10 percent in May and June 2020 and remain above 5.5 percent at the end of March 2021.

Keeping Borrowers Current in a Pandemic

The likelihood of forbearance falls steadily as borrower credit score (measured at the date of mortgage origination) rises, and it is far higher for loans that were delinquent in March 2020; see the next chart. Indeed, forbearance rates remain near 40 percent for borrowers who were delinquent on their mortgages pre-pandemic. The higher rates of mortgage forbearance in poorer areas and among FHA borrowers is consistent with the uneven impact that COVID-19 and the accompanying recession have had on different segments of the population. Mortgage forbearance has been an important policy tool to mitigate the impact of these challenges faced by less-advantaged households.

Keeping Borrowers Current in a Pandemic

Since housing costs are typically one of the largest household expenses, it isn’t surprising that mortgage forbearance offers very substantial cash flow relief to the households that take it up. The table below provides details on the payment relief that different forbearance participants received. (As we show in a companion post, being enrolled in forbearance isn’t quite the same as receiving cash flow relief.) We estimate this relief using the average payment that was due prior to enrolling in forbearance for those who were enrolled in forbearance as of March 2021. (These figures have been very stable since March 2020, so we don’t show the changes over time here.)

Keeping Borrowers Current in a Pandemic

As the table shows, the average monthly cash flow relief associated with a mortgage forbearance is somewhat different across different mortgage types and grows sharply as neighborhood income rises. Indeed, aggregate cumulative payments skipped by borrowers from the poorest 25 percent of neighborhoods are about 38 percent of those skipped in top-quartile neighborhoods.

All told, in absolute dollar terms, mortgage forbearance has brought the most benefit to the highest-income areas. This is due to a combination of high homeownership and relatively expensive mortgage payments in these areas, which more than offsets the considerably higher incidence of forbearance in lower-income areas. Still, the high rates of forbearance take-up on FHA loans and in poorer zip codes makes clear that these programs have been an important lifeline to less-advantaged households.

Conclusion

We find that mortgage forbearance has been an important policy tool to mitigate the impact of the pandemic and has become a fairly common phenomenon since it became widely available last year. After an initial rapid rise to over 7 percent, the share of mortgages in forbearance has slowly declined and stood at just over 4 percent in late March 2021. Forbearance has been more common for FHA borrowers and mortgagors from poorer neighborhoods, as well as those who were already delinquent in March 2020. In a separate post, we look at how being in forbearance affects borrowers, and continue to look at the distribution of those effects.

Andrew F. HaughwoutAndrew F. Haughwout is a senior vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

Donghoon LeeDonghoon Lee is an officer in the Bank’s Research and Statistics Group.

Joelle ScallyJoelle Scally is a senior data strategist in the Bank's Research and Statistics Group.

Wilbert van der KlaauwWilbert van der Klaauw is a senior vice president in the Bank’s Research and Statistics Group.

How to cite this post:

Andrew F. Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw, “Keeping Borrowers Current in a Pandemic,” Federal Reserve Bank of New York Liberty Street Economics, May 19, 2021, https://libertystreeteconomics.newyorkfed.org/2021/05/keeping-borrowers-....

Additional Posts in This Series



What Happens during Mortgage Forbearance?



Small Business Owners Turn to Personal Credit



What’s Next for Forborne Borrowers?




Related Reading

Economic Inequality: A Research Series




Press Briefing


Keeping Borrowers Current in a Pandemic







Disclaimer

The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

The consumption response to borrowing constraints in the mortgage market

Published by Anonymous (not verified) on Tue, 11/05/2021 - 6:00pm in

Belinda Tracey and Neeltje van Horen

How is household consumption affected by borrowing constraints in the mortgage market? In a new paper, we answer this question by studying the UK’s Help to Buy (HTB) program over the period 2014–16. The program facilitated home purchases with only a 5% down payment and resulted in a sharp relaxation of the down-payment constraint. We show that HTB boosted household consumption in addition to stimulating housing market activity. Home purchases increased by 11%, and the increase was driven almost entirely by first-time and young buyers. In addition, household consumption grew by 5% more in parts of the UK more exposed to the program. Relaxing the down payment constraint thus has important macroeconomic effects that extend beyond the housing market.

Why down payment constraints matter

Because mortgages typically cover less than 100% of the purchase price, aspiring home buyers need sufficient savings to finance a down payment. When securing a mortgage, the down payment constraint is one of several different borrowing constraints that come into play. Due to classic leverage effects, this constraint has substantial and non-linear implications for housing affordability. Shifting the loan to value (LTV) requirement from 90% to 95% doubles the amount a buyer can borrow for a given down payment. For example, a household with £10,000 saved for a down payment would be able to buy a house worth only £100,000 with a 90% LTV, but one worth £200,000 with a 95% LTV. Moreover, for households that have difficulty saving for a down payment, this constraint tends to be the most frequently binding.

Help to Buy

After the financial crisis, high LTV mortgages became scarce and most mortgages in the UK required a down payment of 10% or more (Chart 1). Against this backdrop the UK government introduced the HTB program in 2013. A key objective of HTB was to make home buying more accessible for households that were unable to afford the down payment required at the time of its introduction. The Mortgage Guarantee (MG) and Equity Loan (EL) schemes allowed households, under certain conditions, to purchase a home with only a 5% down payment. The program thus represented a significant and sudden relaxation of the down payment constraint in the UK mortgage market.

Chart 1: Number of mortgages, by down payment category

Assessing the impact of Help to Buy 

Given the above points, it is likely for this type of intervention to have a significant impact on several dimensions of the housing market. However, it is not straightforward to quantify the effect as many other factors can impact the demand for housing as well. To do this, a counterfactual is needed: an estimate of what would have happened in the absence of the program.

To create this counterfactual, we exploit the fact that different parts of the UK were differently exposed to HTB. Households with limited ability to save for a down payment are not randomly spread across the UK but tend to be concentrated in specific areas. These are areas where local housing supply is better suited in terms of affordability, housing type, and certain local amenities, such as pubs and restaurants, schools, or parks, which are particularly appealing to these buyers who are relatively young. These local housing market characteristics tend to change only slowly over time. As a result, areas where households would like to purchase a home with a 5% down payment remain relatively stable over time.

To exploit this geographic variation in exposure to HTB, we construct an HTB exposure measure using detailed data on all regulated mortgages originated in the UK from the Financial Conduct Authority. We define exposure to HTB as the proportion of households within a local authority district that bought their home with a 5% down payment in the period before the financial crisis (2005–07). As is clear from Figure 1, exposure varies significantly across the UK. In our analysis we compare housing market activity and household consumption in low relative to high-exposure areas before and after HTB came into effect, while controlling for a wide range of regional macroeconomic and housing market conditions. Low-exposure areas can function as a control group as buyers in these areas are unlikely to react to HTB.

Figure 1: Geographical variation in exposure to Help to Buy

Housing market

Our results show that over the period 2014–16 (when the MG and EL schemes were active) home purchases increased by 4.5% more in parts of the UK that were more exposed to HTB. This increase was almost entirely due to houses purchased with a down payment of only 5%. In aggregate, we estimate that HTB resulted in an additional 220,000 home purchases in 2014–16, representing an 11% increase in homes purchased by first-time buyers and home movers over the period. Of those, we estimate that 78% were purchased by first-time buyers and 90% by younger households. We also find that outside London, districts that were more exposed to the program experienced a modest 1.1 percentage point higher house price growth. In the London area, the impact was larger (4.6 percentage points), consistent with previous research that finds the elasticity of housing supply – which is weaker in London – determined whether house prices reacted to the HTB scheme.

Household consumption

To assess the wider implications of HTB, we use consumption data from the Living Cost and Food Survey and data on all new car registrations. We again compare regions more and less exposed to HTB and examine how consumption reacted after HTB was introduced.

We find that total household consumption increased by 5% more in parts of the UK more exposed to the program. This was partly driven by an increase in home-related expenditure, but also due to a rise in non-durable consumption unrelated to the home. Younger households were entirely responsible for the growth in consumption. In addition, new (loan-financed) car purchases were 4% higher in more exposed regions during the HTB period. These results are independent of changes in regional house prices.

To conclude

Relaxing the down payment constraint thus positively affects household consumption in addition to stimulating housing market activity. Importantly, the impact on consumption goes beyond the previously documented home purchase and housing wealth channels. While it is challenging to quantify the various mechanisms at work, two factors are likely at play. First, the fact that young households drive the growth in consumption is consistent with the idea that saving for a down payment can act as a binding liquidity constraint. By loosening down payment constraints, HTB may boost consumption because aspiring homebuyers no longer need to save as much to accrue a sufficient down payment and hence can spend more. Second, a rise in regional economic activity as a result of HTB likely contributed to the positive consumption effects as well.

Belinda Tracey and Neeltje van Horen work in the Bank’s Research Hub.

If you want to get in touch, please email us at bankunderground@bankofengland.co.uk or leave a comment below.

Comments will only appear once approved by a moderator, and are only published where a full name is supplied. Bank Underground is a blog for Bank of England staff to share views that challenge — or support — prevailing policy orthodoxies. The views expressed here are those of the authors, and are not necessarily those of the Bank of England, or its policy committees.

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