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Environmental Hazards and Mortgage Credit Risk: Evidence from Texas Pipeline Incidents
Author(s) -
Xu Minhong,
Xu Yilan
Publication year - 2017
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 - 10.1111/1540-6229.12213
Subject(s) - collateral , securitization , pipeline (software) , business , mortgage underwriting , economics , actuarial science , credit risk , finance , monetary economics , financial system , mortgage insurance , engineering , casualty insurance , insurance policy , mechanical engineering
This study examines the effects of pipeline hazards on credit risk using evidence from the 2005–2011 home mortgage loans in Texas. Difference‐in‐difference analyses show a permanently lower origination rate by 1.9% in the pipeline‐present areas compared to the pipeline‐free areas, which was further enlarged by 1.8% whenever pipeline incidents happened. Evidence suggests that the permanent difference in credit access reflects lenders’ concerns about collateral value and borrowers’ repayment ability. The elevated post‐incident risk perceptions indicate lenders’ aversion to environmental liabilities. Lenders’ risk management strategies differed by borrowers’ income and evolved with the tightening of the securitization market.