Kimberly F. Luchtenberg

Abstract:  We use the U.S. Department of Housing and Urban Development’s Housing Choice Voucher program as a setting to evaluate the interaction of homeownership and race on the wealth accumulation of low-income households. Using a within-treatment difference-in-differences framework, we establish that low-income households that receive assistance in owning a home experience increased wealth accumulation relative to their tenure as renters. These wealth gains are not present among low-income minority households. Our findings provide evidence that homeownership is a driver of wealth formation for low-income households and that homeownership does not inherently reduce racial disparities in wealth.

Abstract:  This study increases understanding of the mortgage default settlement process by examining how borrowers make decisions during contract negotiations. We explore two main research questions: (1) Do borrowers experience a difference between psychological and legal contracts? and (2) Does inequity aversion, or the dislike of being taken advantage of, influence the willingness of a borrower to withdraw from a mortgage default settlement contract? Our findings suggest borrowers do not conflate legal versus psychological contracts in this setting, a result which contradicts previous research findings. Moreover, as defaulting borrowers appear to place relatively little value on a clean credit report, they do not differentially enter/withdraw from contract negotiations based on a lender’s unwillingness/inability to clear their credit report. These findings, which run counter to conventional wisdom, may well reflect the emerging divide in the U.S. between individuals and large institutions. Specifically, borrowers do not appear to trust lending institutions, nor do they seem to care deeply about conventional underwriting and risk signaling metrics such as credit reports. Thus, in order to successfully and optimally resolve the voluminous magnitude of outstanding, toxic mortgage debt, a revolutionary new approach to negotiating with borrowers that reflects these new norms must be considered. Examination of a second dataset suggests these results are based on the cultural and legal environment in the U.S., and therefore may not be generalizable to other countries.

Abstract:  We test the ability of the Decoy Effect to enhance debt collection efforts and find that by disclosing the Annual Percentage Rate (APR) in settlement offers, participants are less influenced by the decoy and more apt to select the repayment option that is in their best interest. At the same time, by reporting the APR, borrowers are more willing to make repayments on the modified loan, resulting in a net gain to debt collection efforts. Because disclosing the APR is Consumer Financial Protection Bureau (CFPB) compliant, this simple disclosure has the ability to increase debt collection returns while helping borrowers make better decisions when selecting debt modification repayment plans. Our results suggest an applicability to all types of defaulted debt including mortgages, sub-prime auto loans, credit cards, student loans, and payday loans.

Abstract:  Municipalities with higher proportions of Black residents pay higher borrowing costs to issue rated bonds compared to other cities and counties that issue within the same state and year. These higher costs are observed for bonds without credit risk, reduced after EMMA was introduced, and robust to state-tax incentives to hold municipal bonds. Differences in costs occur in counties with greater economic connectedness and civic engagement, and in states with lower levels of racial resentment. Collectively, the findings illustrate that these higher costs do not align with differences in risk or social capital related to the percentage of Black residents.

Media:

• Bloomberg:  A ‘Black Tax’ Costs US Cities Millions They Can’t Afford (article)

• Bloomberg:  How the Muni Market's 'Black Tax' Costs Cities Millions (video)