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

Do Restrictions on Home Equity Extraction Contribute to Lower Mortgage Defaults? Evidence from a... AbstractTexas 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 non-prime mortgages. Estimated non-prime mortgage default hazards within 25 to 100 miles on either side of the Texas border are about 20 percent smaller when crossing into Texas. (JEL G21, G28, R31) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Economic Policy American Economic Association

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

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Publisher
American Economic Association
Copyright
Copyright © 2018 © American Economic Association
ISSN
1945-7731
DOI
10.1257/pol.20140391
Publisher site
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Abstract

AbstractTexas 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 non-prime mortgages. Estimated non-prime mortgage default hazards within 25 to 100 miles on either side of the Texas border are about 20 percent smaller when crossing into Texas. (JEL G21, G28, R31)

Journal

American Economic Journal: Economic Policy – American Economic Association

Published: Feb 1, 2018

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