The Influence of Covid-19 on Subprime in the U.S.

Subprime lending in the United States was a major concern after the 2008 financial crisis. While Covid-19 is sweeping the world, how will the US government and financial institutions deal with the potential crisis of subprime mortgage will be discussed in this study. Financial market institutions and the US government should both change their strategies to deal with the crisis. In addition to controlling the spread of the epidemic, the US government should temporarily lower the minimum wage and provide a series of quantitative financial subsidies. Financial institutions should also update loan data and use better monitoring and regulation to reduce subprime risk to cope with this potential crisis.

GEOGRAPHY OF OPPORTUNITY AND RESIDENTIAL MORTGAGE FORECLOSURE: A SPATIAL ANALYSIS OF A U.S. HOUSING MARKET

South Florida has been among the top foreclosure markets in the United States, but little research has explored whether this market presents different dynamics compared to other metropolitan areas. This research chooses Broward County to explore whether socioeconomic characteristics and certain public policy instruments relate to subprime lending and mortgage foreclosure patterns. Results indicate areas bounded by linear highways and railroads have a concentration of low-income black population and subprime loans. The spatial distribution of subprime loans is mostly explained by a higher percentage of minority and/or Hispanic population in a neighborhood. Yet, racial minorities, instead of Hispanic origin, contributes mostly to the concentration of subprime loans. The spatial pattern of foreclosures is more complex, determined not only by subprime loans but also possibly other factors associated with the mortgage crisis. This suggests that disadvantaged neighborhoods are disproportionally lacking favorable opportunities due to institutional and sub- cultural forces shaping the geography of subprime and foreclosure.

See No Evil

During the 2000s, universal banks originated and securitized trillions of dollars of toxic subprime loans and sold the resulting debt securities to investors around the world. Governments on both sides of the Atlantic encouraged universal banks to engage in high-risk lending and securitization. Universal banks enjoyed unrivaled influence, and government officials ignored warnings about the dangers of subprime lending from consumer advocates and academics who did not hold “mainstream” views. Policymakers in the U.S. and Europe recognized that many households were becoming more deeply indebted and were relying more heavily on home mortgages and other types of consumer credit to cover their living expenses. Officials tolerated those developments because they viewed housing construction and household consumption as the primary drivers of economic growth in an otherwise challenging environment. The decision by policymakers to rely on housing credit as the main stimulus for economic growth in a period of stagnant incomes had catastrophic results.

Cross-Sectional Patterns of Mortgage Debt during the Housing Boom: Evidence and Implications

In this paper, we use two comprehensive micro-data sets to study how the distribution of mortgage debt evolved during the 2000s housing boom. We show that the allocation of mortgage debt across the income distribution remained stable, as did the allocation of real estate assets. Any theory of the boom must replicate these facts, and a general equilibrium model shows that doing so requires two elements: (1) an exogenous shock that increases expected house price growth or, alternatively, reduces interest rates and (2) financial markets that endogenously relax borrowing constraints in response to the shock. Empirically, the endogenous relaxation of constraints was largely accomplished with subprime lending, which allowed the mortgage debt of low-income households to increase at the same rate as that of high-income households.

The Financial Crisis

This chapter discusses the origins of the 2007 financial crisis, subprime lending, and government-sponsored entities. It argues that the events driving financial markets to the precipice of collapse during the global financial meltdown gave rise to a regulatory framework that may have been a rational response to a market in free fall, but need to be reassessed in an era of recovery. In 2018, the U.S. economy may be, by many measures, viewed as wholly recovered from the economic impact of the crisis. The stock market is trading at record highs, having erased all the losses of the crisis period and then some. With this recovery, the Trump administration seeks to restrain the regulatory burden imposed during the crisis.