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Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market

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  • Favara, Giovanni
  • Giannetti, Mariassunta

Abstract

We provide evidence that lenders differ in their ex post incentives to internalize price-default externalities associated with the liquidation of collateralized debt. Using the mortgage market as a laboratory, we conjecture that lenders with a large share of outstanding mortgages on their balance sheets internalize the negative spillovers associated with the liquidation of defaulting mortgages and are thus less inclined to foreclose. We find that zip codes with higher concentration of outstanding mortgages experience fewer foreclosures, more renegotiations of delinquent mortgages, and smaller house prices declines. These results are not driven by prior local economic conditions, mortgage securitization or unobservable lender characteristics.

Suggested Citation

  • Favara, Giovanni & Giannetti, Mariassunta, 2015. "Forced Asset Sales and the Concentration of Outstanding Debt: Evidence from the Mortgage Market," CEPR Discussion Papers 10476, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:10476
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    Cited by:

    1. Mariassunta Giannetti & Farzad Saidi, 2019. "Shock Propagation and Banking Structure," Review of Financial Studies, Society for Financial Studies, vol. 32(7), pages 2499-2540.
    2. Mayordomo, Sergio & Pavanini, Nicola & Tarantino, Emanuele, 2020. "The Impact of Alternative Forms of Bank Consolidation on Credit Supply and Financial Stability," CEPR Discussion Papers 15069, C.E.P.R. Discussion Papers.
    3. Deeksha Gupta, 2018. "Too Much Skin-in-the-Game? The Effect of Mortgage Market Concentration on Credit and House Prices," 2018 Meeting Papers 512, Society for Economic Dynamics.
    4. Cristian Badarinza & John Y. Campbell & Tarun Ramadorai, 2016. "International Comparative Household Finance," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 111-144, October.
    5. José Azar & Sahil Raina & Martin Schmalz, 2022. "Ultimate ownership and bank competition," Financial Management, Financial Management Association International, vol. 51(1), pages 227-269, March.
    6. Pauline AVRIL & Grégory LEVIEUGE & Camélia TURCU, 2021. "Natural Disasters and Financial Stress: Can Macroprudential Regulation Tame Green Swans?," LEO Working Papers / DR LEO 2913, Orleans Economics Laboratory / Laboratoire d'Economie d'Orleans (LEO), University of Orleans.
    7. Duqi, Andi & McGowan, Danny & Onali, Enrico & Torluccio, Giuseppe, 2021. "Natural disasters and economic growth: The role of banking market structure," Journal of Corporate Finance, Elsevier, vol. 71(C).
    8. Simlai, Prodosh, 2019. "Subprime credit, idiosyncratic risk, and foreclosures," The Quarterly Review of Economics and Finance, Elsevier, vol. 74(C), pages 175-189.
    9. Minetti, Raoul & Murro, Pierluigi & Peruzzi, Valentina, 2022. "Out of sight, out of mind? Global chains, export, and credit allocation in bad times," Working Papers 2022-2, Michigan State University, Department of Economics.
    10. Chavaz, Matthieu, 2016. "Dis-integrating credit markets: diversification, securitization, and lending in a recovery," Bank of England working papers 617, Bank of England.

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    More about this item

    Keywords

    bank concentration; fire sales; foreclosures; house prices;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets
    • R38 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Government Policy

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