PUBLICATIONS
PUBLICATIONS
(previously titled: The Effect of Dealer Leverage on Mortgage Quality)
Journal of Financial Economics, 2023, 149, 451-472
Continuous DiD ATE Weight Calculation
Press:
AEA 2022: Poster Presentation
Securities dealers receive mortgages as collateral for credit lines provided to mortgage companies and reuse the same collateral to borrow money. Exploiting the 2005 BAPCPA rule change, which granted mortgage collateral preferred bankruptcy treatment, I find that strengthening creditor rights increases dealers' collateral reuse. Increasing collateral reuse creates a money multiplier that increases credit supply. Using a novel dataset linking dealers to the mortgage companies they fund reveals that post-BAPCPA, dealers supply additional credit to mortgage companies by increasing credit lines and relaxing restrictions on collateral securing them. In response, mortgage companies increase origination volume and shift into riskier products.
2. Bank Leverage Restrictions in General Equilibrium: Solving for Sectoral Value Functions
Journal of Risk and Financial Management - Special Issue: Financial Resilience in Turbulent Times, 2025, 18(9), 519
This paper develops a tractable method to solve a general equilibrium model with bank runs and exogenous leverage ratio restrictions, enabling welfare analysis of macroprudential policy across the business cycle. By computing bankers’ value functions via backward induction from steady state, the framework quantifies how leverage caps affect capital allocation, asset prices, and run probabilities during recovery from crises. Calibrated simulations show that welfare-enhancing policy is time-varying -- lenient when households’ marginal utility of consumption is high, restrictive in low-marginal-utility states. The results highlight a trade-off: tighter leverage restrictions improve stability but risk persistent efficiency losses if imposed too harshly after crises.
3. The Rise of Nonbanks in Servicing Household Debt (with Naser Hamdi, Erica Jiang, Manisha Padi, and Avantika Pal)
Revise and Resubmit at Journal of Finance
Washington University in St. Louis Olin Business School Center for Finance & Accounting Research Paper Series
Winning NBER grant proposal, "Shadow Banks and Financial Distress in Minority Communities: The Debt Servicing Channel," Co-PI with Erica Jiang and Manisha Padi
Press: Duke FinReg Blog, AEA Video Series, Olin CFAR Top Cited Paper of 2024
Study Center Gerzensee 2024: Poster Presentation
We study the real impacts of capital regulation caused by the reallocation of mortgage servicing rights (MSRs). Using U.S. credit registry data, we show that Basel III’s stricter MSR regulation induced banks to transfer riskier MSRs, leading to a market-wide shift toward non-bank servicers. We develop a model showing that the privately optimal allocation of MSRs may not minimize agency conflict in a non-integrated mortgage market. Comparing foreclosure rates, a sufficient statistic for welfare in the model, we show that the reallocation of MSRs decreased agency conflicts and enhanced investor welfare at the expense of borrowers.
4. The Impact of Collateral Value on Mortgage Originations
Washington University in St. Louis Olin Business School Center for Finance & Accounting Research Paper Series
Winning IU Racial Justice Research Fund grant proposal, "Racial Inequality in the Housing Market"
Press: Wells Fargo Advisors Center for Finance and Accounting Research “See Far” Magazine (Featured Article)
Collateral, a debt contracting feature, affects risk of investments. I study how stronger repo creditor rights -- increasing collateralizability -- affect the risk of investments undertaken when the borrower is itself a financial intermediary. Exploiting the 2005 bankruptcy policy change shows stronger creditor rights on collateral backing warehouse funding allow financial intermediaries to innovate the downstream lending products they offer, propagating expansion of riskier financial products. Minority-dominant zip codes are more exposed to these alternative products featuring low documentation and negative amortizing payments. These loans have correlated payment resets, higher defaults, and lead to worse longer-term credit outcomes. The results highlight the importance of ensuring collateral maintains price stability before granting it super-senior bankruptcy status, which increases both product innovation and salability -- fueling fire sales.
5. The Cost of Servicing Debt Pools (with Manisha Padi, and Xiyu Wang)
With the rise of securitization, 45% of US mortgages are not serviced by their originator, yet little is known about how loan servicers set prices and its effect on loan performance. We provide novel evidence that the majority of servicers set their servicing fees at average cost to service a pool of securitized loans. We introduce a theoretical framework to study investor welfare loss under a fixed relative to variable fee regime and find that the cost to borrowers dwarfs the cost to investors. Empirically, we calculate a risk based fair value of the loan level servicing fee to document the wedge between the fair versus actual servicing fee. Consistent with servicers working harder to cure overpriced loans, we find that servicers increase foreclosures and decrease loan modifications when there is larger underpricing – actual fee is lower than fair fee. At the security level, we find that larger underpricing negatively impacts investor cash flows and asset prices.
6. Regulating Secondary Loan Markets: Evidence from Small Business Lending (with Manisha Padi)
Washington University in St. Louis Olin Business School Center for Finance & Accounting Research Paper Series
We investigate how secondary market regulation shifts loan terms and borrower composition in the primary market. Utilizing data on government-guaranteed Small Business Administration (SBA) 7(a) loans and their secondary market, we study the 2017 tightening of the Minimum Maturity Ratio (MMR) which restricts differences in loan maturities within a pool. To assess the causal effect of the reform, accounting for the possibility of selection into securitization, we utilize differential propensities of lenders to securitize loans as a shifter of treatment. Results demonstrate that maturity decreases by about 18 months due to the MMR reform. The reform also lowers the probability that a loan is securitized, increases interest rates, and decreases chargeoff rates. The reform shifted the types of businesses that received loans, away from physical-capital-intensive sectors. Finally, the MMR reform decreased lenders' propensity to serve counties with high Black or minority demographic shares. Our results suggest that secondary loan market reforms have significant real impacts on primary markets.