Lauri Kytömaa, an ACCESS community member and assistant professor of applied economics and policy at Cornell University’s SC Johnson College of Business, has recently won the Public Utility Research Center Prize from the International Industrial Organization for his research on the role of debt relief design and mortgage firm behavior in the U.S. foreclosure crisis.
“This project began during my graduate studies at the University of Texas at Austin where I was working on the Texas Advanced Computing Center’s (TACC) Stampede2 system,” Kytömaa said. “The U.S. National Science Foundation’s ACCESS program has allowed me to seamlessly continue leveraging the now upgraded Stampede3 system after I joined Cornell’s faculty.”
In his most recent research, Kytömaa introduced a statistical model of the interaction between mortgage firms and financially distressed borrowers to study how the presence of borrower private information about default risk can affect the disbursement of debt relief. He found that due to private information, mortgage firms may withhold assistance to deter strategic defaults, unintentionally increasing foreclosure rates among genuinely distressed homeowners.
Applying this model to historical loan data, the project evaluated the impact of the Federal Home Affordable (FHA) Modification Program, estimating that while it prevented 200,000 foreclosures between 2007 and 2016, information gaps and limited aid left 1.1 million additional homes—valued at $110 billion—vulnerable to foreclosure. Kytömaa said that these results suggest that relief programs need to better account for asymmetric information and borrower behavior to be more effective.
My work on mortgage debt relief initiatives uses the ACCESS program allocations at TACC’s Stampede3 system to solve high-dimensional optimization problems in a manner of minutes. The same operations would take weeks or even months on a personal computer. This work would not have been possible without high-throughput computing and access to the ACCESS allocation program.
–Lauri Kytömaa, assistant professor, Cornell University
“While the foreclosure crisis that followed the downturn in 2008 is well behind us, access to housing will always be a fundamental concern for individuals,” Kytömaa said. “Mortgage debt continues to be the largest liability on consumer balance sheets, potentially creating tremendous risk for people faced with economic hardship, and foreclosure is an emotionally and financially taxing process for everyone involved, and a central contribution of this project is to provide a framework for thinking about our next crisis.”
Kytömaa most recently presented this work at the Federal Reserve Bank of Philadelphia’s Mortgage Market Research Conference with the presentation available online here.
Resource Provider Institution(s): Texas Advanced Computing Center (TACC)
Resources Used: Stampede3
Affiliations: Cornell University
Funding Agency: NSF
Grant or Allocation Number(s): SOC230019
The science story featured here was enabled by the U.S. National Science Foundation’s ACCESS program, which is supported by National Science Foundation grants #2138259, #2138286, #2138307, #2137603, and #2138296.