Induced Seismic Risk and Residential Mortgage Lending with Minhong Xu
Journal of Real Estate Research, forthcoming
Fracking poses a threat to real estate investors by negatively impacting property values. Despite growing environmental concerns, state and local regulations are often insufficient. This study examines mortgage lenders’ strategies in addressing seismic risk induced by fracking wastewater injection in Oklahoma. We find that lenders increased the likelihood of loan rejection or sale following heightened seismic activity, likely driven by active monitoring of earthquakes through official risk forecasts rather than passive exposure. While all lenders were more responsive to earthquakes in injection-intense regions, the approaches of local and non-local lenders varied based on their relative advantages and reliance on public information. Interstate and out-of-state lenders ceased reacting to earthquakes after the 2015 energy price decline, whereas local lenders to Oklahoma markets maintained consistent reactions over time. These findings suggest that banks can actively gather information from diverse sources to manage underregulated environmental risks in the face of economic and policy uncertainty.
Assessing the environmental performance of green mortgage backed securities with Avis Devine
Journal of Regional Science, 2024
The green bond market is growing substantially, bringing with it a focus on economic and environmental performance. Yet while extensive work exists examining the former, there is little concrete evidence regarding the efficacy of green bond use-of-proceeds. Concurrently, the demand for ESG-compliant investments provides an opportunity to direct capital toward the rehabilitation of one of the most energy-intensive asset classes: real estate. One program in this space, the Fannie Mae Green Rewards green bond program, offers incentives to borrowers to increase multifamily building energy and water efficiency. Although all program participants must complete a set of preapproved projects targeting energy and water efficiency within 12 months of loan origination, there exists substantial variation in the realization of post-origination efficiency outcomes, and in the variation between projected and actual efficiency improvements. We find that fixed interest rates and supplemental financing loan structures are associated with post-origination energy efficiency improvements, as are newer, larger, and high-quality assets. However, the ex ante estimates of efficiency savings provided to prospective investors prove unrelated to the efficiency outcomes. These findings highlight opportunities to improve program transparency and calibration across the green bond universe.
Boom Town Business Dynamics with Ryan Decker and Greg Upton
Semi-finalist Best Paper, FMA 2019
FED Discussion Series Paper 2020-081
Journal of Human Resources, 2024
http://jhr.uwpress.org/content/early/2022/01/05/jhr.0221-11501R1.abstract
The shale oil and gas boom in the U.S. provides a unique opportunity to study economic growth in a "boom town" environment, to derive insights about economic expansions more generally, and to obtain clean identification of the causal effects of economic growth on specific margins of business adjustment. The creation of new business establishments--separate from the expansion of existing establishments--accounts for a disproportionate share of the multi-industry employment growth sparked by the shale boom, an intuitive but not inevitable empirical result that is broadly consistent with canonical models of firm dynamics. New firms, in particular, contribute nearly half of the cumulative economic growth resulting from the shale boom.
How "Bad" is Renter Protection for Institutional Investment in Multifamily Housing? with Stanimira Milcheva
Journal of Housing Economics, 2023
We assess the role of state-level renter protection regulations on the pricing, performance and risk of multifamily housing. We construct a renter protection score (RPS) to measure the extent of renter protection in each state. Using a proprietary property-level dataset from loans backed by commercial mortgage backed securities (CMBS) and census tract socioeconomic variables, we study the role of RPS on initial capitalization (cap) rates, annual net operating income (NOI) and annual loan delinquency rates of multifamily housing.
We find that, contrary to conventional wisdom that renter protection is `bad' for investors, multifamily housing in high RPS states is associated higher annual NOI and NOI growth and lower delinquency rates. We also show that better tenant protection is associated with lower initial cap rates. The results point to investors perceiving properties in more regulated states as lower risk due to reduced income volatility. For institutional investors, higher levels of renter protection are, therefore, not `bad' but are instead associated with lower cash flow volatility and better income growth prospects.
Should population density be used to rank social vulnerability in disaster preparedness planning? with Sourav Batabyal
Economic Modelling, 2023
The CDC Social Vulnerability Index (SVI) was developed to help public health officials and policymakers to identify geospatial variations in social vulnerability for each community to better respond to hazardous events, including disease outbreaks. However, the SVI does not include information on population density, which is a significant omission when considering the usefulness of the index in allocating scarce resources such as medical supplies and personnel, bedding, food, and water to locations they are most needed. Using county-level data from the initial U.S. COVID-19 outbreak, we provide empirical evidence that the existing SVI underestimates (overestimates) county-level infection rates in densely (sparsely) populated counties if population density is not accounted for. Population density remains significant even after allowing for spatial spillover effects. Going forward, the inclusion of population density to construct SVI can improve its usefulness in aiding policymakers in allocating scarce resources for future disasters, especially those with spatial dependence.
Cleaning Up Corruption and the Climate: The Role of Green Building Certifications with Avis Devine and Svetlana Orlova
Finance Research Letters, 2022
Adoption of green building certifications can help mitigate climate change in several ways. The most evident impact is introduction and implementation of higher environmental standards designed to reduce greenhouse gas emissions. We document a less obvious effect of green building certifications on corruption: an increase in certification adoption is associated with a decrease in corruption at the country level. This suggests that improvements in country-level control of corruption, particularly in the construction industry, may also be correlated with more efficient use of existing resources and attract climate-conscious investments, thus helping to reduce the gap in financing necessary to achieve carbon neutrality goals.
Mortgage Relief: Who CARES? with Mariya Letdin
Journal of Housing Research, 2022
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) provides mortgage forbearance relief to qualifying borrowers, whose loans are placed in a government backed mortgage pool. We analyze the effects of being ineligible for the program by examining the aftermath of the same requirement in the Home Affordable Refinance Program (HARP). Using a comparable sample of borrowers with Freddie Mac loans and privately securitized loans we compare loan performance and quantify potential wealth, consumption, and credit consequences for prime borrowers whose loans were placed in private securitization pools and who were thus ineligible for a government relief program. We show that restricting modification benefits to include only borrowers in federally backed mortgage pools results in significant loss in wealth (through reduced prepayment and increased default) for those otherwise similar borrowers whose loans are placed outside of GSE pools. The greatest detriment is documented in CBSAs with the largest housing price declines.
Advancing Energy Efficiency through Green Bond Policy: Multifamily Green Mortgage Backed Securities Issuance with Avis Devine
Journal of Cleaner Production, 2022
Diffusion of new technology, such as green bond policies, is impacted by inefficiencies and frictions as the market navigates adoption. Using data from Fannie Mae multifamily green mortgage backed security issuances, we identify possible disconnects between pricing and benefits, as well as adoption trends. Evidence indicates that loans on properties backed by green bonds that incentivize energy efficiency in multifamily buildings receive lower interest rates, lower debt service coverage ratios, and higher leverage ratios than their ``brown" counterparts. Some of these findings represent stated program benefits, yet others do not. Additionally, some benefits are observed accruing to properties which are not participating in a green MBS program, despite already qualifying for participation. Supporting evidence points to drivers of adoption and program refinements which could aid in policy maximization. Our results carry implications for both existing green bond programs as well as the diffusion of green bond policy into the broader capital markets.
Home Maintenance Expenditures and Social Interaction with Yuree Lim
Real Estate Finance, 2020
Investment in home maintenance is important for homeowners because it helps preserve the value of their housing asset, a large component of household wealth. However, as households age, they invest less in home maintenance and today's retirement age households are less likely to own their homes outright that previous generations. However, we find that increased social interaction is associated with higher levels of home maintenance expenditures. This effect is concentrated in retirement age homeowners and is robust to controls for household income, wealth, and housing value. These results have implications not only for the financial well-being of aging households and their heirs, but also for local municipalities, neighboring properties, and mortgagees who are also affected by the home maintenance investment decisions of homeowners.
Understanding Social System Drivers of Green Building Innovation Adoption in Emerging Market Countries: The Role of Foreign Direct Investment with Avis Devine
Cities, 2019
https://doi.org/10.1016/j.cities.2019.03.005
There has been a growing academic focus on the economic, environmental, and social implications of sustainable innovation adoption. This work has largely focused on the developed world, yet the majority of people and future economic growth lies in the developing world. Further, most research examines micro data on consumers or firms, limiting what is known regarding the role of macro factors on diffusion, such as social systems. Addressing these limitations, this research provides the first high-level insights into how green building adoption is occurring in developing countries. Utilizing a hand-collected dataset of all green building certification activity in 97 emerging market countries over fifteen years, we examine the relationship between economic development and green building adoption. We find use of international certification programs is far more common than domestic programs, and that domestic programs have only been originated in advanced emerging economies. Additionally, we see a relationship between foreign direct investment into emerging markets countries and the proliferation of green building, and that in most cases, domestic certification programs only originate after international certification activity has been introduced to the local economy. Our findings carry economic and policy implications, worthy of consideration by both foreign investors and emerging market countries.
Mortgage Default Decisions in the Presence of Non-normal, Spatially Dependent Disturbances with Raffaella Calabrese and Kelley Pace
Regional Science and Urban Economics, 2019
https://doi.org/10.1016/j.regsciurbeco.2019.01.001
We develop a flexible binary choice model for mortgage default decisions that incorporates neighborhood effects in the disturbances. The main advantage of the model lies in its performance in providing accurate estimates of the probability of default for risky mortgage loans. In addition, it can be applied to portfolios with a high number of loans. Assuming mortgage decisions with spatially dependent disturbances, the proposed approach uses the generalized extreme value distribution to flexibly model the error terms. To estimate the model on a large sample size, we use a variant of the Geweke-Hajivassiliou-Keane algorithm. We apply the proposed model and its competitors to a large data set on almost 300,000 mortgages in Clark County, which includes Las Vegas, over 2009-2010. The results show that our proposal greatly improves the predictive accuracy of identifying loans that will default. Moreover, the competitor models underestimate credit Value at Risk.
Local Labor Market Shocks and Residential Mortgage Payments: Evidence from the Shale Oil and Gas Boom with Greg Upton
Resource and Energy Economics, 2018.
https://doi.org/10.1016/j.reseneeco.2018.05.001
USAEE Working Paper, 16-258
Frequently, housing is the largest item on a household's balance sheet, and therefore making monthly mortgage payments is often both the largest regular expenditure as well as a primary savings vehicle for households. However, changes to economic conditions impact household spending and savings decisions. To investigate the dynamics of this relationship, we examine mortgage payment choices of homeowners who purchased property in areas that later experienced a positive shock to local economic conditions via the shale oil and gas boom. We find that borrowers with properties located in areas with shale oil and gas booms experienced a 6% reduction in the probability of missing a mortgage payment over the period 2007--2014. Indexing these results to the size of the boom, we find that one hundred additional rigs (billion dollars of oil and gas produced) is associated with a 3.2% (1.6%) decrease in default. Additionally, we find differential effects on housing markets across geography, time, loan leverage, and credit risk categories.
Asymmetric Effects of Housing Wealth on College Enrollment with Greg Upton
Applied Economics Letters, 2018.
http://dx.doi.org/10.1080/13504851.2017.1310989
We investigate the impact of housing wealth, credit availability and financial distress on college enrollment decisions. We find that housing wealth is negatively related to enrollment in public schools and positively related to enrollment in private schools. This evidence suggests that, on average, students substituted away from private schools towards public institutions during the recent financial crisis.
Deleveraging and Mortgage Curtailment with Hong Lee and Kelley Pace
Journal of Banking and Finance, 2015.
http://dx.doi.org/10.1016/j.jbankfin.2015.06.019
Using monthly loan-level data, individual curtailment payments from January 2001 to June 2011 are observed for mortgages in twenty metropolitan statistical areas. Contrary to some earlier assertions, American homeowners now frequently commit funds towards their mortgage payments in excess of the amount due; over 30% of loans outstanding as of June 2011 have made at least one curtailment payment. After controlling for borrower and loan-level variables, we show that the latent propensity to curtail has steadily risen from 2003 to 2006 and remains at elevated levels. Therefore, curtailment provides an example of consumer deleveraging behavior that began prior to the Great Recession.
Creating a Green Building Ecosystem: The Impact of Local Sustainability Policies with Stanimira Milcheva
Draft available on my SSRN page
Although there are several important federal initiatives, many sustainability efforts in the United States are enacted by states or municipalities. Some of these policies are structured as regulatory mandates while others offer incentives to drive adoption of sustainability related initiatives. We aim to examine how these sustainability efforts impact commercial real estate, specifically, property-level financial performance. We create an index to measure the intensity of local environmental initiatives by state and estimate the effect of higher levels of sustainability policy adoption on building level NOI, change in NOI, cap rates and mortgage default. We show that green policies are associated with higher valuations and lower initial cap rates at the time of loan origination. However, in terms of performance an increase in green policy intensity is associated with a significantly lower annual property level NOI. This in turn, leads to loans on those properties being more likely to experience severe delinquency. This is the case for both green regulations and green incentives, although the magnitude of these negative effects are larger for regulations. Furthermore, the negative impact of green policy intensity is mitigated for properties that have been recently renovated. The effects remain robust across property types, except for multifamily housing, lodging, and mixed-use properties which experience net positive NOI effects. While previous work has focused on the returns to property-level green renovations or certifications, results provide insight into how local sustainability policy may more broadly impact commercial real estate performance.
After the Storm: Reallocation in Commercial Real Estate with Cayman Seagraves and Jason Walter
Exposure to natural disaster risk is an important consideration for participants in the commercial real estate market. In the past 30 years, in the state of Florida alone, the total estimated economic loss from hurricanes is over $250 billion, which doesn't directly consider insured losses that commercial properties may face. While Florida has adopted many new policies, such as revisions to building codes, changes to insurance regulations, and incentives to develop greater resiliency throughout the physical building stock, our knowledge is limited in regards to how commercial properties, in aggregate, are impacted by disaster risk. In this study, we examine three major dimensions of possible reallocation in the FL CRE market from 1995 to 2023. Our findings reveal that hurricanes lead to a notable increase in the likelihood of use code changes in commercial properties, with a more pronounced effect in higher-category storms. Additionally, the impact on market dynamics, such as sales price and volume, is significant, with a marked decrease in both aspects following hurricane events. This trend highlights the market's vulnerability to natural disasters. Finally, we plan to utilize these results to examine how disasters via commercial real estate can impact industry agglomeration in fourteen major Florida MSAs.
Remote Work, Task-Switching, and Employee Performance with Eric Olson, Cayman Seagraves, and Jason Walter
This study examines the impact of teleworking and hybrid schooling on employee performance evaluations during the COVID-19 pandemic. Using a unique dataset from a major U.S. public company, combined with local school district operational data, we analyze how different schooling modes affect employee evaluations. Our theoretical model predicts that hybrid schooling increases task-switching, leading to reduced productivity. Empirical results confirm that employees in hybrid schooling districts experience significantly lower evaluation scores compared to those in in-person settings. These findings highlight the challenges of balancing work and family responsibilities in remote work environments and suggest the need for organizations to adapt their performance evaluation criteria and support systems in the evolving workplace landscape.