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Research
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Working Paper 15-3: Additional Market Risk Shocks: Prepayment Uncertainty and Option-Adjusted Spreads
Assessments of market risk for economic or regulatory capital typically involve calculating a portfolio’s sensitivity to key risk factor movements. Historically, practitioners have focused on two classical sources of risk, adverse changes in interest rates and volatility. As stress testing has...
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Working Paper 15-2: The Marginal Effect of First-Time Homebuyer Status on Mortgage Default and Prepayment
This paper examines the loan performance of Fannie Mae and Freddie Mac first-time homebuyer mortgages originated from 1996 to 2012. First-time homebuyer mortgages generally perform worse than repeat homebuyer mortgages. But first-time homebuyers are younger and have lower credit scores, home equity...
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Working Paper 15-1: How Low Can House Prices Go? Estimating a Conservative Lower Bound
We develop a theoretically-based statistical technique to identify a conservative lower bound for house prices. Leveraging a model based upon consumer and investor incentives, we are able to explain the depth of housing market downturns at both the national and state level over a variety of market...
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Working Paper 14-3: The Relationship between Second Liens, First Mortgage Outcomes, and Borrower Credit: 1996-2010
To help inform the ongoing policy debate concerning the risks associated with second mortgages, the paper rigorously evaluates the effect of second liens on the performance of first mortgages. Using a dataset that combines credit bureau information with mortgage performance data, the statistical...
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Working Paper 14-2: The Effects of Monetary Policy on Mortgage Rates
Economic events over the past decade have changed central bank policies in the United States and around the world. The housing and financial markets experienced significant changes as the markets first surpassed historical highs and then underwent a recession grave enough to draw comparison with the...
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Working Paper 14-1: Countercyclical Capital Regime Revisited: Test of Robustness
This paper tests the robustness of key elements of the Smith and Weiher (2012) countercyclical capital regime. Such tests are now possible given that the recent house price cycle is nearing its end. The recent house price cycle allows for rigorous out-of-sample testing because it encompassed state...
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Working Paper 13-3: Impacts of Down Payment Underwriting Standards on Loan Performance - Evidence from the GSEs and FHA Portfolios
Policy discussions are increasingly focused on a return to more conservative mortgage underwriting standards. This study explores the relationship between down payment (loan‐to‐value ratio or LTV) requirements and loan performance of GSE and FHA mortgages, controlling for borrower characteristics...
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Working Paper 13-2: Generating Historically-Based Stress Scenarios Using Parsimonious Factorization
This paper describes an empirical approach to generate plausible, historically‐based interest rate shocks, which can be applied to any market environment and can readily link to movements in other key risk factors. The approach is based upon yield curve parameterization and requires a parsimonious...
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Working Paper 13-1: Distressed Sales and the FHFA House Price Index
Trends in residential house values can be expressed by changes in House Price Indexes (HPIs). HPIs are based on observed prices and help guide real estate activities. Since the recent housing crash, distressed sales have increased in numbers and have led to concerns about their effects on market...
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Working Paper 12-2: Countercyclical Capital Regime – A Proposed Design and Empirical Evaluation
Motivated by the Great Recession in 2008, countercyclical capital regimes are now being considered by financial regulators. This paper provides a methodology on structuring a countercyclical capital requirement to achieve the goal of determining, at the time of acquisition, an amount of capital...