Under Review
    Cubist Systematic Strategies Ph.D. Candidate Award for Outstanding Research (2018 WFA)
    Best Paper Award, Ohio State University PhD Conference on Real Estate and Housing (2018)

Financially constrained mortgage servicers destroyed substantial MBS investor value during the financial crisis through their management of delinquent mortgages. Servicers have an obligation to advance to investors monthly payments missed by borrowers. This paper shows that, to minimize this obligation to extend financing to distressed borrowers, constrained servicers aggressively pursued foreclosures and modifications at the expense of investors, borrowers, and future mortgage performance. IV regressions suggest that servicers' financial constraints caused 440,712 additional foreclosures. On average, a servicer's financial constraints were responsible for 20.51% of the total investor value destroyed per defaulted loan–causing aggregate investor value destruction of $84 billion.

    (with Mark J. Garmaise and Gabriel Natividad)
    Under Review

The U.S. mortgage market exhibits competitive instability in which some lenders emerge rapidly from the fringe to substantial market shares. Using inferred discontinuities in mortgage acceptance models to generate local financing shocks, we link this instability to strong positive and convex feedback effects in lending: future applicants are especially attracted to the current fastest growing lenders. Local mortgage markets resemble tournaments; the quickest-growing (not the largest) competitors divert applications and originations from other lenders. Facing a quickly-growing competitor, banks charge higher interest rates, partially due to the increased risk of their loans, and experience worse mortgage performance.

This paper describes an important borrower risk factor observed privately by the issuer of non-agency RMBS. The private information available to the issuer is drawn from behavioral cues exhibited early in the life of the loan. Mortgage borrowers that make their first six payments at least a day prior to the due date are 14.8 percentage points less likely to become delinquent (equivalent to a 91-point increase in FICO score). This effect is persistent, unobservable at loan origination, and privately observed by the issuer prior to securitization. Both the credit rating agencies and the investor do not appear to be aware of this risk factor. Surprisingly, issuers are quicker to securitize loans with positive private signals rather than less promising loans.