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Do restrictions on home equity extraction contribute to lower mortgage defaults? evidence from a policy discontinuity at the Texas’ border

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  • Anil Kumar

Abstract

Texas is the only US state that limits home equity borrowing to 80 percent of home value. This paper exploits this policy discontinuity around the Texas? interstate borders and uses a multidimensional regression discontinuity design framework to find that limits on home equity borrowing in Texas lowered the likelihood of mortgage default by about 1 percentage point for all mortgages and 2-4 percentage points for nonprime mortgages. Estimated nonprime mortgage default hazards within 25 to 100 miles on either side of the Texas? border are about 15 percent smaller as one crosses into Texas.

Suggested Citation

  • Anil Kumar, 2014. "Do restrictions on home equity extraction contribute to lower mortgage defaults? evidence from a policy discontinuity at the Texas’ border," Working Papers 1410, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:feddwp:1410
    DOI: 10.24149/wp1410
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    Cited by:

    1. Gabriel Loumeau, 2020. "Regional Borders, Commuting and Transport Network Integration," KOF Working papers 20-489, KOF Swiss Economic Institute, ETH Zurich.
    2. Steven Laufer, 2018. "Equity Extraction and Mortgage Default," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 28, pages 1-33, April.
    3. John V. Duca & Lilit Popoyan & Susan M. Wachter, 2019. "Real Estate And The Great Crisis: Lessons For Macroprudential Policy," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 121-137, January.
    4. Andreas Fuster & Benedict Guttman-Kenney & Andrew F. Haughwout, 2018. "Tracking and stress-testing U.S. household leverage," Economic Policy Review, Federal Reserve Bank of New York, issue 24-1, pages 35-63.
    5. Giuntella, Osea & Mazzonna, Fabrizio, 2019. "Sunset time and the economic effects of social jetlag: evidence from US time zone borders," Journal of Health Economics, Elsevier, vol. 65(C), pages 210-226.
    6. Franz, Thorsten, 2019. "Monetary policy, housing, and collateral constraints," Discussion Papers 02/2019, Deutsche Bundesbank.

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    More about this item

    Keywords

    Home quity; mortgage default; negative equity;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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