UC Berkeley

Regulation of financial firms both directly affects firm and indirectly affect borrowers. In this dissertation, I study how regulations on financial firms affect consumers borrowing to buy a home. I study two types of regulation aimed at protecting borrowers: price restrictions and loan servicing rules, and show that both had benefits for borrowers.

Regulation of loan prices is a controversial policy tool. Proponents argue that regulation protects borrowers from high prices, while detractors argue that restricting prices prevents borrowers from obtaining credit. Firm profits play a role in the effects of price regulation. If lenders are profitable enough to offer lower prices while continuing lending activity, borrowers can benefit from price regulation. In the first chapter, I study the effects of price restriction in the highly concentrated manufactured home loan market and show manufactured homes, known colloquially as “mobile homes” or “trailers”, are a source of affordable housing for approximately 17 million people in the United States. I find that loan prices fell in response to the 2014 regulation while a similar number of loans with prices near the cap were made, suggesting that borrowers benefited. This response is driven by the largest firm in the market, which made about 90\% of affected loans. I show that this firm charges higher prices than other firms to observably similar borrowers, which fits with the finding that they were able to continue lending activity after the restriction was implemented. I then consider how stricter restrictions would affect borrowers and lenders. In order to conduct this counterfactual analysis, I develop and estimate a model of supply and demand for manufactured home loans, estimate borrowers' price sensitivity, and recover markups. Under progressively stricter rate restrictions, I find that borrowers initially gain surplus from lower prices but are eventually worse off due to the fall in credit supply.

In the second chapter, with Manisha Padi and Chen Meng, I study how a regulation on firms affected borrowers' financial health after the origination of a loan. Debt servicers directly interact with household borrowers to collect payments, make key decisions about creditor leniency, and have been targeted to help alleviate financial distress by regulators during the 2008 financial crisis and the COVID-19 pandemic. This chapter provides evidence about how mortgage regulations affect financial health, since credit data allows us to see each consumer's mortgage and non-mortgage borrowing and ability to repay debt. We study the 2013 introduction of mortgage servicing regulations by the Consumer Financial Protection Bureau (CFPB), we study whether requiring servicers to process loss mitigation applications and to wait a minimum of 120 days before foreclosure filing improves consumer outcomes. Data from loan level mortgage performance data shows that servicing regulations significantly improve loan performance, lowering the probability that a loan ends up in loss mitigation or in foreclosure. Moreover, using linked credit data, we show that servicer-driven, rather than household-driven, shifts in loan performance allow households to spend more during times of financial distress. Overall, our results imply that servicer regulation has the potential to alleviate debt burdens in both crisis and non-crisis environments.