The Rise in Mortgage Defaults
Journal of Economic Perspectives, Vol. 23, No. 1, pp. 27-50, 2009
24 Pages Posted: 27 Oct 2011
Date Written: 2009
Abstract
The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as "subprime" or "near-prime." The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Did Securitization Lead to Lax Screening? Evidence from Subprime Loans
By Benjamin J. Keys, Tanmoy K. Mukherjee, ...
-
The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis
By Atif R. Mian and Amir Sufi
-
The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis
By Atif R. Mian and Amir Sufi
-
Understanding the Subprime Mortgage Crisis
By Yuliya Demyanyk and Otto Van Hemert
-
Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions
-
Assessing High House Prices: Bubbles, Fundamentals, and Misperceptions
-
Understanding the Securitization of Subprime Mortgage Credit
By Adam B. Ashcraft and Til Schuermann
-
Housing Supply and Housing Bubbles
By Edward L. Glaeser, Joseph Gyourko, ...
-
Housing Supply and Housing Bubbles
By Edward L. Glaeser, Joseph Gyourko, ...
-
Urban Growth and Housing Supply
By Edward L. Glaeser, Joseph Gyourko, ...