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How Did Refis Impact the 2008 Financial Crisis?

first_img Demand Propels Home Prices Upward 2 days ago Home / Daily Dose / How Did Refis Impact the 2008 Financial Crisis? How Did Refis Impact the 2008 Financial Crisis? Data Provider Black Knight to Acquire Top of Mind 2 days ago Servicers Navigate the Post-Pandemic World 2 days ago David Wharton, Managing Editor at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has over 16 years’ experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. Wharton and his family currently reside in Arlington, Texas. He can be reached at [email protected] The Week Ahead: Nearing the Forbearance Exit 2 days ago 2008 Financial Crisis cash-out refinance cash-out refis Housing Crisis Purchase Loans rate refis Refinance Activity Urban Institute 2018-04-09 David Wharton Servicers Navigate the Post-Pandemic World 2 days ago Sign up for DS News Daily The Best Markets For Residential Property Investors 2 days ago While there is still debate about the various factors that contributed to the 2008 financial crisis and the collapse of the housing market, a new paper by the Urban Institute suggests that the poor performance of cash-out refinances, and refinances in general, were important contributing factors.“What Fueled the Financial Crisis? An Analysis of the Performance of Purchase and Refinance Loans,” authored by the Urban Institute’s Laurie S. Goodman and Jun Zhu, opens with a recap of two competing theories about what caused the 2008 financial crisis. On one side, there is the narrative that government policies aimed at building homeownership backfired by encouraging the private sector to offer mortgages to borrowers with poor credit and without the financial stability to afford them. On the other side of the debate places more of the onus on the lenders themselves for lending to subprime borrowers. The Urban Institute report, however, suggests that refinances may have played more of a role in the crisis than has been acknowledged before.According to the report, recent research suggests first-time homebuyers were not the largest contributors to poor credit performance. Instead, the report points to established borrowers seeking cash-out refinances or second liens on their mortgages. “These borrowers often used non-traditional instruments such as Interest Only loans and negative amortization loans to stretch their buying power,” states the report.Examining “detailed loan-level information from Fannie Mae and Freddie Mac loan level credit database,” the Urban Institute researchers gathered data on 30-year fixed-term mortgage originations occurring between 1999-2016. From there, they divided the data into subcategories representing purchase loans, rate refi, and cash-out refi. “To qualify a rate refi, the borrower must use the proceeds only to pay off the first mortgage,” explains the report. “The cash out to the borrower cannot exceed 2 percent of the new refi mortgage or $2,000, whichever is less. Otherwise, the new mortgage will be considered as cash out refi.”The Urban Institute study found that, during the period leading up to the financial crisis, purchase loans accounted for 44-48 percent of the market, whereas refis were taking up an increasing percentage of the market (cash-out refis were at 37 percent during 2005-2008, as opposed to 15 percent in 2006).Examining default activity for both purchase loans and refis, the Urban Institute researchers found that during the examined years, purchase loans performed much better when it came to default rates than refis did. In 2004, 5.3 percent of purchase loans defaulted [defined here as going 180 days delinquent (D180) or having been “liquidated from a delinquent state prior to the D180 point”]. The rate was 5.8 percent for rate refis and 7.3 percent for cash-out refis. Shifting to 2007, those rates changed to 9.6 percent for purchase loans, 15.9 percent for rate refis, and 17.1 percent for cash-out refis.“Thus, inconsistent with their weaker credit profile, purchase loans have stronger performance than rate refis,” states the report. “The default rate on cash out refis is much worse than either purchase loans or rate refinances.”That pattern continues across multiple angles of examination, with purchase loans consistently performing better than rate refis or cash-out refis. “Our results reveal that cash-out refinances has the poorest behavior on every dimension, especially during the financial crisis,” states the report. “Thus, our results show it was not the expansion of lending to include more marginal borrowers that caused the financial crisis. Rather, contributing factors to the crisis include the performance of the cash out refinances in particular, and refinances more generally.”To read the Urban Institute’s full report, click here. Related Articles Share Savecenter_img Subscribe Tagged with: 2008 Financial Crisis cash-out refinance cash-out refis Housing Crisis Purchase Loans rate refis Refinance Activity Urban Institute Data Provider Black Knight to Acquire Top of Mind 2 days ago The Best Markets For Residential Property Investors 2 days ago About Author: David Wharton Demand Propels Home Prices Upward 2 days ago  Print This Post Governmental Measures Target Expanded Access to Affordable Housing 2 days ago in Daily Dose, Featured, Foreclosure, Journal, Market Studies, News, Servicing Governmental Measures Target Expanded Access to Affordable Housing 2 days ago April 9, 2018 2,494 Views Previous: Carrington Launches ‘Non-Prime’ Lending Program Next: Fewer Renters Planning to Buy a Homelast_img read more

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Online hub for social science

first_imgIt’s already transformed the way we communicate and consume information, and how we buy everything from hangers to homes. Now Harvard scientists hope to use the Internet to change how social scientists investigate human behavior.Launched this year by Assistant Professor of Government Ryan Enos, the Digital Lab for the Social Sciences (DLABSS) is designed to serve as an online clearinghouse where social scientists can find study participants.“What we want to do is combine the advantages of a traditional brick-and-mortar, in-person lab with the advantages of an online lab,” Enos said. “The goal of DLABSS is to create a single online lab any Harvard social scientist can use, where they can run studies, and we will do the work of attracting subjects for them.”While in-person studies have long been the gold standard in social science, they aren’t without faults. Recruiting large study pools is expensive and time-consuming, and participants are usually drawn from limited geographic regions.The expectation, Enos said, is that by moving such studies online, scientists will be able to quickly and cheaply tap a worldwide pool of potential subjects.“What we have realized in recent years is we don’t have to do all this research face-to-face,” Enos said. “There are many research projects today that use samples that are from the online world. For example, a huge portion of the survey research you see today comes from Internet surveys.”The idea of conducting studies online isn’t new — services that pay users to perform simple tasks, such as Amazon Mechanical Turk, have found increasing popularity among researchers in recent years. But DLABSS is unique because it has been designed from the ground up for research, Enos said.“As you can imagine, when you’re paying someone to take part in a study, there’s a large incentive for them to cheat — they may claim to be someone they’re not — and that’s especially true when you can’t verify their identity because you’re not face-to-face. For example, many researchers want to conduct studies only on people from the United States. Even though Mechanical Turk tries very hard to verify the identity of the people using the site, there are lots of ways to get around that.“A common practice in these studies is to pay participants minimum wage,” Enos continued. “That may not be much money in the U.S., but in the developing world, it can be very worthwhile to cheat to receive those payments. There is also evidence that some users of Mechanical Turk are what we refer to as professional research subjects. In other words they’re sitting in front of a computer all day taking studies.”To avoid those pitfalls, Enos worked with staff at the Harvard Institute for Qualitative Social Science (IQSS) to create a lab that relies on volunteers.“There are actually a number of examples of volunteer science that have been conducted in recent years, including here at Harvard,” he said. “We think some people will come to the site because they’re just good citizens, or they’re interested in taking part in the creation of knowledge, but we think there may also be some people who just find these things interesting or entertaining.”Interested users provide some initial demographic information, such as age, gender, race, income level, and political preference, and can then take part in any of the studies posted online.As the subject pool grows, scientists may be able to directly contact users who meet certain demographic criteria. For example, a researcher hoping to study Latino men between the ages of 20 and 40 could use the site to contact only users who fit that description.For now, DLABSS will be open only to Harvard researchers. Enos said that he hopes researchers will be willing to accept slower progress in finding subjects while the lab builds its study pool.“You can imagine that online studies could be part of a larger research agenda,” Enos said. “Researchers or students can come to DLABSS to conduct an initial study that captures a specific population, then move on to other studies or observations in the day-to-day world, because they offer advantages over the Internet.”last_img read more

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