How House Price Dynamics and Credit Constraints Affect the Equity Extraction of Senior Homeowners

FEDS Working Paper No. 2015-070

http://dx.doi.org/10.17016/FEDS.2015.070

39 Pages Posted: 21 Sep 2015

See all articles by Stephanie Moulton

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs

Samuel Dodini

Cornell University, College of Human Ecology, Students

Donald R. Haurin

Ohio State University (OSU) - Economics

Maximilian D. Schmeiser

Amazon Lending

Multiple version iconThere are 2 versions of this paper

Date Written: September 8, 2015

Abstract

Households can borrow against equity through different channels, including home equity lines of credit (HELOCs), second liens, cash-out refinancing, and for senior homeowners, reverse mortgages. We use data from the New York Federal Reserve/Equifax Consumer Credit Panel, the U.S. Department of Housing and Urban Development, and other sources to jointly estimate the decision to extract equity through these different channels. Specifically, we identify the influence of credit constraints, house price dynamics and their interactions on the proportion of seniors in a ZIP code extracting through a given channel each year from 2004 to 2012 — the boom and bust period in the U.S. housing market. Prior research finds credit constrained households were more responsive to house price gains than non-constrained households. Our results suggest that this response varies depending on borrowing channel. As house prices increased, cash-out refinancing increased in credit constrained areas, but HELOCs increased in less credit constrained areas. Further, when house prices fell, HECM originations increased — particularly in credit constrained areas. We also observe differential responses to credit constraints and house price changes in minority versus non-minority neighborhoods.

Keywords: Home Equity Extraction, Mortgages and credit, Reverse Mortgages

JEL Classification: R21, G21, J14, R31

Suggested Citation

Moulton, Stephanie and Dodini, Samuel and Haurin, Donald R. and Schmeiser, Maximilian D., How House Price Dynamics and Credit Constraints Affect the Equity Extraction of Senior Homeowners (September 8, 2015). http://dx.doi.org/10.17016/FEDS.2015.070. Available at SSRN: https://ssrn.com/abstract=2662603 or http://dx.doi.org/10.2139/ssrn.2662603

Stephanie Moulton

Ohio State University- John Glenn College of Public Affairs ( email )

110 Page Hall
1810 College Road
Columbus, OH 43210
United States

Samuel Dodini

Cornell University, College of Human Ecology, Students ( email )

Ithaca, NY
United States

Donald R. Haurin

Ohio State University (OSU) - Economics ( email )

154 N. Oval Mall
1010G Derby Hall
Columbus, OH 43210-1172
United States
614-292-0482 (Phone)
614-292-9530 (Fax)

Maximilian D. Schmeiser (Contact Author)

Amazon Lending ( email )

Seattle, WA 98144
United States

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