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Comparing patterns of default among prime and subprime mortgages

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  • Gene Amromin
  • Anna L. Paulson
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    Abstract

    This article compares default patterns among prime and subprime mortgages, analyzes the factors correlated with default, and examines how forecasts of defaults are affected by alternative assumptions about trends in home prices. The authors find that extremely pessimistic forecasts of home price appreciation could have generated predictions of subprime defaults that were closer to the actual default experience for loans originated in 2006 and 2007. However, for prime loans one would have also had to anticipate that defaults would become much more sensitive to home prices.

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    File URL: http://www.chicagofed.org/digital_assets/publications/economic_perspectives/2009/ep_2qtr2009_part2_amromin_paulson.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2009)
    Issue (Month): Q II ()
    Pages: 18-37

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    Handle: RePEc:fip:fedhep:y:2009:i:qii:p:18-37:n:v.33no.2

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    1. Dell’Ariccia, G. & Igan, D. & Laeven, L., 2009. "Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market," Discussion Paper 2009-46 S, Tilburg University, Center for Economic Research.
    2. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
    3. Kristopher S. Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul S. Willen, 2009. "Making sense of the subprime crisis," Public Policy Discussion Paper 09-1, Federal Reserve Bank of Boston.
    4. Foote, Christopher L. & Gerardi, Kristopher & Goette, Lorenz & Willen, Paul S., 2008. "Just the facts: An initial analysis of subprime's role in the housing crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 291-305, December.
    5. Paul S. Willen & Adam Hale Shapiro & Kristopher Gerardi, 2008. "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures," 2008 Meeting Papers 345, Society for Economic Dynamics.
    6. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, MIT Press, vol. 125(1), pages 307-362, February.
    7. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards," IMF Working Papers 08/106, International Monetary Fund.
    8. Danielle DiMartino & John V. Duca, 2007. "The rise and fall of subprime mortgages," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(nov).
    9. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
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