Ulrich Schüwer

This paper examines how local disaster risk – a specific dimension of credit risk – and state foreclosure regimes jointly shape mortgage lending. Using HMDA data on jumbo applications (ineligible for GSE purchase) matched to census-tract disaster-risk measures, I find that high disaster risk reduces the approval probability only in borrower-friendly states (nonrecourse or judicial): by about 5–6 percentage points for loan applications in the top decile of disaster risk. Loan terms of approved loans also adjust with the regime: loan-to-value ratios decline and interest rates rise with disaster risk more in nonrecourse than in recourse states, though magnitudes are small. The results highlight how foreclosure laws materially affect the pass-through of location-specific risk to credit allocation and pricing. Conversely, the effects of foreclosure laws depend on local (disaster) risk. Analyses that ignore this interaction can overlook, understate, or overstate the effects of disaster risk and foreclosure law.

 

 

 

 

– Séminaire organisé par le programme 4 / BSE –

 

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