Patrick Power PRO
Economics PhD @ Boston University
This is an augmented presentation of the original paper where I add both my own thoughts and ideas from other articles in addition to the paper under discussion. For a clear understanding of the original paper, please see the original paper.
Financial Distress
Financial Distress
Non-financial Distress
Landlord
Homeowner
Renter
Impact of Foreclosure
"Our most intriguing finding from the credit report data is that foreclosure causes additional financial distress."
Let's Discuss
Which Foreclosure Is More Important?
"It turns out that foreclosure in the administrative judicial records and foreclosure in the credit report data are only loosely correlated."
"This may be because while payments and debt amounts are automatically filled from lenders computer systems into credit reports, foreclosures require manual entry on the part of lenders and thus may have more error. This is why many papers that use credit report data to study foreclosure use delinquency measures rather than the foreclosure flag."
Delinquency
Bank Foreclosure
Judge's Decision to Foreclose
Possible Setups
Impact of Judicial Foreclosure on Credit Score
Instrumental Variables
Selection-on-Observables
Judge-IV
Concerns
Judges
Immediate
Outcomes
Downstream
Outcomes
Household
IV v.s. PSM
Context
Proposal
Why this is a bad idea
Does Judge-IV Capture the relevant population in this setting?
"The average foreclosure, however, is in a worse neighborhood and does not have far to fall on the neighborhood quality ladder – and in fact may actually improve neighborhoods after moving out due to regression to the mean."
Let's Discuss
Yes ... but there's an uncertainty that the standard errors of the estimator don't capture
"We next turn to the landlords, for whom we mainly use PSM because of wide confidence intervals for IV."
"The confidence intervals in the reader's mind are generally larger than those reported under the coefficient in a regression table" - Anonymous*
Further Discussion
Re-read the interpretation - What do you think?
These are intended to be helpful to students reading the paper
"We ask whether existing estimates of the social costs of foreclosure are incomplete because they neglect significant non-pecuniary costs."
Comment
Suggestion
"Second, our findings about treatment effect heterogeneity and the significant gaps between marginal and average households implies that different policies may have different implications."
Comment
Suggestion
"For all owners, foreclosure causes housing instability, reduced homeownership, and financial distress including increased delinquency on other debts."
Comment
Suggestion
"The identifying assumption of the PSM approach is that (1) conditional on the propensity score fixed effects, the treatment and control groups have parallel trends"
Comment
"The main disadvantage of the PSM approach is that it assumes selection on the observables"
"In the judge IV context, montonicity is a concern if, for instance, minority judges are more lenient for minority defendants and non-minority judges are more lenient for non-minority defendants. We evaluate the monotonicity assumption extensively in Appendix B.2 and find no evidence of a violation of monotonicity."
Comment
By Patrick Power