Do Restrictions on Home Equity Extraction Contribute to Lower Mortgage Defaults? Evidence from a Policy Discontinuity at the Texas Border

American Economic Journal: Economic Policy, Forthcoming

66 Pages Posted: 1 Jul 2014 Last revised: 22 Mar 2017

See all articles by Anil Kumar

Anil Kumar

Federal Reserve Bank of Dallas - Research Department

Date Written: January 31, 2017

Abstract

Texas is the only US state that limits home equity borrowing to 80 percent of home value. This paper exploits this policy discontinuity around Texas’ interstate borders and uses a multidimensional regression discontinuity design framework to find that limits on home equity borrowing in Texas lowered the likelihood of mortgage default by about 1.5 percentage points for all mortgages and 4-5 percentage points for nonprime mortgages. Estimated nonprime mortgage default hazards within 25 to 100 miles on either side of the Texas border are about 20 percent smaller when crossing into Texas.

Keywords: Home Equity, Mortgage Default, Negative Equity

JEL Classification: G21, G28, R28

Suggested Citation

Kumar, Anil, Do Restrictions on Home Equity Extraction Contribute to Lower Mortgage Defaults? Evidence from a Policy Discontinuity at the Texas Border (January 31, 2017). American Economic Journal: Economic Policy, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2460347 or http://dx.doi.org/10.2139/ssrn.2460347

Anil Kumar (Contact Author)

Federal Reserve Bank of Dallas - Research Department ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
127
Abstract Views
1,222
rank
275,286
PlumX Metrics