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Bankruptcy Exemption, Home Equity and Mortgage Credit
Author(s) -
Cao Qianqian
Publication year - 2014
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12083
Subject(s) - home equity , bankruptcy , equity (law) , shared appreciation mortgage , mortgage underwriting , endogeneity , foreclosure , economics , loan to value ratio , loan , business , debt , mortgage insurance , value (mathematics) , finance , financial system , law , insurance policy , machine learning , casualty insurance , political science , computer science , econometrics
This article examines the impact of state bankruptcy homestead exemptions on mortgage application outcomes. The empirical analysis controls for endogeneity problems by focusing on 55 urban areas that cross state borders using the Home Mortgage Disclosure Act files from 2001 to 2008. The results indicate that holding the loan‐to‐value ratio constant, a more generous homestead exemption encourages borrowers to buy more housing and take out larger mortgages. However, holding house value constant, a more generous homestead exemption discourages mortgage borrowing and results in more home equity. Moreover, benefits of the homestead exemption outweigh the costs of it to mortgage lenders.