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House prices and subprime mortgage delinquencies

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Author Info

  • Mark Doms
  • Frederick Furlong
  • John Krainer

Abstract

In this Economic Letter, we explore how the pace of and change in house-price appreciation can affect the incentives and opportunities for borrowers in a market to avoid delinquencies and foreclosures. For instance, with likely gains in home equity in markets where house prices have risen significantly, a homeowner should have greater incentives and opportunities to keep a mortgage loan current. Indeed, we show that markets that recently experienced greater house-price appreciation tended to have lower delinquency rates and smaller increases in delinquency rates. We also find that metropolitan areas where house prices decelerated the most in 2006 have experienced the largest increases in subprime delinquency rates. One of several possible explanations for this relationship is that, in the face of sharp declines in the pace of house-price appreciation, some borrowers may have lowered their expectations about future appreciation rates, and, hence, the attractiveness of the investment component of homeownership also declined.

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Bibliographic Info

Article provided by Federal Reserve Bank of San Francisco in its journal FRBSF Economic Letter.

Volume (Year): (2007)
Issue (Month): jun8 ()
Pages:

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Handle: RePEc:fip:fedfel:y:2007:i:jun8:n:2007-14

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Related research

Keywords: Housing - Prices ; Mortgage loans;

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Cited by:
  1. Janet L. Yellen, 2008. "Credit, housing, commodities, and the economy," Speech 55, Federal Reserve Bank of San Francisco.
  2. Janet L. Yellen, 2008. "The financial markets, housing, and the economy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue apr18.
  3. Mark Doms & Fred Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco.
  4. Janet L. Yellen, 2008. "Credit, housing, commodities, and the economy," Speech 56, Federal Reserve Bank of San Francisco.

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