Frederick T. Furlong

Group Vice President

Financial Markets and Institutions Research

Financial markets, Institutions, Regulation

Frederick.Furlong (at)


Frederick T. Furlong

Show less Current Unpublished Working Papers

Mortgage Choice in the Housing Boom: Impacts of House Price Appreciation and Borrower Type
2014-05 | With Takhtamanova and Lang | March 2014

+ abstract
The U.S. housing boom during the first part of the past decade was marked by rapid house price appreciation and greater access to mortgage credit for lower credit-rated borrowers. The subsequent collapse of the housing market and the high default rates on residential mortgages raise the issue of whether the pace of house price appreciation and the mix of borrowers may have affected the influence of fundamentals in housing and mortgage markets. This paper examines that issue in connection with one aspect of mortgage financing, the choice among fixed-rate and adjustable-rate mortgages. This analysis is motivated in part by the increased use of adjustable-rate mortgage financing, notably among lower credit-rated borrowers, during the peak of the housing boom. Based on analysis of a large sample of loan level data, we find strong evidence that house price appreciation dampened the influence of a number of fundamentals (mortgage pricing terms and other interest rate related metrics) that previous research finds to be important determinants of mortgage financing choices. With regard to the mix of borrowers, the evidence indicates that, while low risk-rated borrowers were affected on the margin more by house price appreciation, on balance those borrowers tended be at least as responsive to fundamentals as high risk rated borrowers. The higher propensity of low credit-rated borrowers to choose adjustable-rate financing compared with high credit-rated borrowers in the housing boom appears to have been related to borrower credit risk metrics. Given the evidence related to loan pricing terms, other interest rate metrics and fixed effects, the relation of credit risk to mortgage financing choice seems more consistent with considerations such as credit constraints, risk preferences, and mortgage tenor than just a systematic lack of financial sophistication among higher credit risk borrowers.

Subprime Mortgage Delinquency Rates
2007-33 | With Doms and Krainer | November 2007

+ abstract
We evaluate the importance of three different channels for explaining the recent performance of subprime mortgages. First, the riskiness of the subprime borrowing pool may have increased. Second, pockets of regional economic weakness may have helped push a larger proportion of subprime borrowers into delinquency. Third, for a variety of reasons, the recent history of local house price appreciation and the degree of house price deceleration may have affected delinquency rates on subprime mortgages. While we find a role for all three candidate explanations, patterns in recent house price appreciation are far and away the best single predictor of delinquency levels and changes in delinquencies. Importantly, after controlling for the current level of house price appreciation, measures of house price deceleration remain significant predictors of changes in subprime delinquencies. The results point to a possible role for changes in house price expectations for explaining changes in delinquencies.

Regional Economic Conditions and the Variability of Rates of Return in Commercial Banking
2007-21 | With Krainer | September 2007

+ abstract
We develop new techniques to assess the relationship between commercial bank performance and the economic conditions in the markets in which they operate. In the analysis, we allow for heterogeneity in the responses of banks to regional economic conditions. We find a statistically significant relationship between bank performance and shocks to the regional markets in which they operate. We find that region-specific shocks have a significant and persistent effect on the cross-sectional variance of bank performance in the market. That is, shocks affecting average performance of banks in a region also tend to increase the dispersion of their performance. We demonstrate that this effect is due to heterogeneity in the banks’ exposures to their regional economies. Moreover, by allowing for this heterogeneity, we find that systematic responses to regional economic effects are notably more important in explaining the variation in bank performance than suggested by analysis in which responses are constrain to be the same for all banks.

Show less Published Articles (Refereed Journals and Volumes)

Comment: Reducing Risk at Small Community Banks: Is It Size or Geographic Diversification That Matters?
Journal of Financial Services Research 25(2-3), April 2004, 283-289

Financial Modernization and Regulation
Journal of Financial Services Research 16 (2/3), September 1999, 5-10 | With Kwan

A Re-examination of Mean-Variance Analysis of Bank Capital Regulation
Journal of Banking and Finance 14, 1990 | With Keeley

Capital Regulation and Bank Risk-Taking: A Note
Journal of Banking and Finance 13, 1989 | With Keeley

Shoring Up the Deposit Insurance System
American Banker, 1988

Regulating Bank Capital
In Annual Editions: Macroeconomics | Guilford, CT: The Dushkin Publishing Group, 1988 | With Keeley

The Search for Financial Stability: Postscript
In The Search for Financial Stability: The Past Fifty Years, ed. by Furlong and Keeley, 1985. 213-234 | With Keeley

Show less Books

Financial Modernization and Regulation
2000 | Norwell, MA: Kluwer Academic Publishers | Editors Eisenbeis Furlong Kwan

The Search for Financial Stability: The Past Fifty Years
1985 | San Francisco: FRB San Francisco | Editors Furlong Keeley

Basic Concepts in Economics
1983 | Culver City: Zenger Publications | Furlong Furlong

Show less FRBSF Publications

Drivers of Mortgage Choices by Risky Borrowers
Economic Letter 2014-01 | January 6, 2014 | With Lang and Takhtamanova

Did the Housing Boom Affect Mortgage Choices?
Economic Letter 2012-33 | November 5, 2012 | With Takhtamanova

Stress Testing and Bank Capital Supervision
Economic Letter 2011-20 | June 27, 2011

Loss Provisions and Bank Charge-offs in the Financial Crisis: Lesson Learned
Economic Letter 2010-16 | May 24, 2010 | With Knight

Regional Economic Conditions and Community Bank Performance
Economic Letter 2007-22 | July 27, 2007 | With Krainer

House Prices and Subprime Mortgage Delinquencies
Economic Letter 2007-14 | June 8, 2007 | With Doms and Krainer

Financial Market Signals and Banking Supervision: Are Current Practices Consistent with Research Findings?
Economic Review | 2006 | With R. Williams

Gains in U.S. Productivity: Stopgap Measures or Lasting Change?
Economic Letter 2005-05 | March 11, 2005 | With Daly

Deposit Insurance Reform–When Half a Loaf Is Better
Economic Letter 2002-14 | May 10, 2002 | With Kwan

Profile of a Recession: The U.S. and California
Economic Letter 2002-04 | February 22, 2002 | With Daly

Productivity in Banking
Economic Letter 2001-22 | July 27, 2001

Rising Price of Energy
Economic Letter 2001-11 | April 20, 2001 | With Daly

California IPO Wealth Effects: What’s Left?
Economic Letter 2000-36 | December 8, 2000 | With Mattey

Tech Stocks and House Prices in California
Economic Letter 2000-27 | September 15, 2000 | With Krainer

The Gramm-Leach-Bliley Act and Financial Integration
Economic Letter 2000-10 | March 31, 2000

» View FRBSF Publications prior to 2000

Show less Other Works

Safe and Sound Banking, 20 Years Later: What Was Proposed and What Has Been Adopted
Forthcoming in FRB Atlanta Economic Review | With Kwan

Financial Turmoil and the Economy
2008 FRBSF Annual Report, 2009, 6-14 | With Kwan

The Subprime Mortgage Market: National and Twelfth District Developments
2007 FRBSF Annual Report, 2008, 6-17 | With Krainer

Shaping the Economy
FRBSF 2003 Annual Report, January 2004

Improving Public Disclosure in Banking
Federal Reserve System Staff Study 173, March 2000 | With Kwan and et al.

Domestic and International U.S. Economic Policy in the 1980s
Paper delivered at the Eighth Pacific Basin Central Bank Conference on Economic Modeling in Kuala Lumpur, Malaysia, November 1988 | With Beebe

New Deposit Instruments
Federal Reserve Bulletin, May 1983

Checkwriting and Other Redemption Activity at Money Market Funds
Federal Reserve Board, August 1982 | With Moran

The Role of the Federal Agencies in Meeting the Liquidity Requirements of Thrift Institutions
In The Report of the Interagency Task Force on Thrift Institutions | Washington, D.C.; U.S. Government Printing Office, 1980