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The evolution of the subprime mortgage market

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Author Info
Souphala Chomsisengphet
Anthony Pennington-Cross

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Abstract

This paper describes subprime lending in the mortgage market and how it has evolved through time. Subprime lending has introduced a substantial amount of risk-based pricing into the mortgage market by creating a myriad of prices and product choices largely determined by borrower credit history (mortgage and rental payments, foreclosures and bankruptcies, and overall credit scores) and down payment requirements. Although subprime lending still differs from prime lending in many ways, much of the growth (at least in the securitized portion of the market) has come in the least-risky (A-) segment of the market. In addition, lenders have imposed prepayment penalties to extend the duration of loans and required larger down payments to lower their credit risk exposure from high-risk loans.

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File URL: http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf
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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2006)
Issue (Month): Jan ()
Pages: 31-56
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:fip:fedlrv:y:2006:i:jan:p:31-56:n:v.88no.1

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Keywords: Mortgages;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Paul S. Calem & Kevin Gillen & Susan Wachter, 2004. "The Neighborhood Distribution of Subprime Mortgage Lending," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 393-410, December. [Downloadable!]
    Other versions:
  2. Anthony Pennington-Cross, 2006. "The Value of Foreclosed Property," Journal of Real Estate Research, American Real Estate Society, vol. 28(2), pages 193-214. [Downloadable!]
    Other versions:
  3. Joseph Tracy & Henry Schneider & Sewin Chan, 1999. "Are stocks overtaking real estate in household portfolios?," Current Issues in Economics and Finance, Federal Reserve Bank of New York, issue Apr. [Downloadable!]
  4. Pennington-Cross, Anthony, 2003. "Credit History and the Performance of Prime and Nonprime Mortgages," The Journal of Real Estate Finance and Economics, Springer, vol. 27(3), pages 279-301, November. [Downloadable!] (restricted)
  5. Joseph Nichols & Anthony Pennington-Cross & Anthony Yezer, 2004. "Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 197-219, November. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Atif Mian & Amir Sufi, 2008. "The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis," NBER Working Papers 13936, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Gene Amromin & Anna L. Paulson, 2009. "Comparing patterns of default among prime and subprime mortgages," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q II, pages 18-37. [Downloadable!]
  3. Gwinner, William B. & Sanders, Anthony, 2008. "The sub prime crisis : implications for emerging markets," Policy Research Working Paper Series 4726, The World Bank. [Downloadable!]
  4. Janet L. Yellen, 2008. "The financial markets, housing, and the economy," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Apr 18. [Downloadable!]
  5. Martin Hellwig, 2009. "Systemic Risk in the Financial Sector: An Analysis of the Subprime-Mortgage Financial Crisis," De Economist, Springer, vol. 157(2), pages 129-207, June. [Downloadable!] (restricted)
    Other versions:
  6. Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2007. "Do Households Benefit from Financial Deregulation and Innovation? The Case of the Mortgage Market," NBER Working Papers 12967, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Patrick Bolton & Xavier Freixas & Joel Shapiro, 2009. "The Credit Ratings Game," Economics Working Papers 1149, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  8. Paul S. Mills & John Kiff, 2007. "Money for Nothing and Checks for Free: Recent Developments in U.S. Subprime Mortgage Markets," IMF Working Papers 07/188, International Monetary Fund. [Downloadable!]
  9. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "Subprime refinancing: equity extraction and mortgage termination," Working Papers 2006-023, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  10. W. Scott Frame & Lawrence J. White, 2009. "Technological change, financial innovation, and diffusion in banking," Working Paper 2009-10, Federal Reserve Bank of Atlanta. [Downloadable!]
  11. Geetesh Bhardwaj & Rajdeep Sengupta, 2008. "Where's the smoking gun? a study of underwriting standards for US subprime mortgages," Working Papers 2008-036, Federal Reserve Bank of St. Louis. [Downloadable!]
  12. Júlia Király & Márton Nagy & Viktor E. Szabó, 2008. "Contagion and the beginning of the crisis – pre-Lehman period," MNB Occasional Papers 2008/76, Magyar Nemzeti Bank (The Central Bank of Hungary). [Downloadable!]
  13. O. Emre Ergungor, 2006. "Bank branch presence and access to credit in low-to-moderate income neighborhoods," Working Paper 0616, Federal Reserve Bank of Cleveland. [Downloadable!]
  14. Mark Doms & Fred Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco. [Downloadable!]
  15. 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. [Downloadable!] (restricted)
  16. Geetesh Bhardwaj & Rajdeep Sengupta, 2008. "Did prepayments sustain the subprime market?," Working Papers 2008-039, Federal Reserve Bank of St. Louis. [Downloadable!]
  17. Kristopher Gerardi & Harvey S. Rosen & Paul Willen, 2006. "Do households benefit from financial deregulation and innovation?: the case of the mortgage market," Public Policy Discussion Paper 06-6, Federal Reserve Bank of Boston. [Downloadable!]
  18. Giang Ho & Anthony Pennington-Cross, 2006. "Predatory lending laws and the cost of credit," Working Papers 2006-022, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  19. Quan Gan & Robert J. Hill, 2008. "Measuring Housing Affordability: Looking Beyond the Median," Discussion Papers 2008-09, School of Economics, The University of New South Wales. [Downloadable!]
    Other versions:
  20. Christopher L. Foote & Kristopher Gerardi & Paul S. Willen, 2008. "Negative equity and foreclosure: theory and evidence," Public Policy Discussion Paper 08-3, Federal Reserve Bank of Boston. [Downloadable!]
    Other versions:
  21. Carlos Garriga & William T. Gavin & Don Schlagenhauf, 2006. "Recent trends in homeownership," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 397-412. [Downloadable!]
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