Second Mortgages and Household Saving

42 Pages Posted: 21 Apr 2011

See all articles by Joyce Manchester

Joyce Manchester

Vermont Legislative Joint Fiscal Office

James M. Poterba

National Bureau of Economic Research (NBER); Massachusetts Institute of Technology (MIT) - Department of Economics

Date Written: February 1989

Abstract

Second mortgages accounted for 10.8% of the stock of outstanding mortgage debt at the end of 1987, up from 3.6% at the beginning of the 198Os. This paper investigates the determinants of second mortgage borrowing and the characteristics of second mortgage borrowers. We first calculate the outstanding stock of home equity that remains to be borrowed against on tax-preferred terms, recognizing the limits on interest deductions in the 1986 Tax Reform Act and the 1987 Omnibus Budget Reconciliation Act. Despite these limits, we estimate that more than two trillion dollars of housing equity remains to be borrowed against by current homeowners. We then present cross-sectional evidence suggesting that households who obtain second mortgages after purchasing a home ace less wealthy than other households with similar characteristics. Each dollar of second mortgage borrowing is associated with a seventy-five cent reduction in household net worth. While these results cannot be given a causal interpretation, they are consistent with the view that increased access to second mortgages has reduced personal saving.

Suggested Citation

Manchester, Joyce and Poterba, James M., Second Mortgages and Household Saving (February 1989). NBER Working Paper No. w2853. Available at SSRN: https://ssrn.com/abstract=1816007

Joyce Manchester (Contact Author)

Vermont Legislative Joint Fiscal Office ( email )

United States
802-828-3099 (Phone)
802-828-2483 (Fax)

HOME PAGE: http://www.leg.state.vt.us/jfo

James M. Poterba

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-350
Cambridge, MA 02142
United States
617-253-6673 (Phone)
617-253-1330 (Fax)

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