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Measuring mortgage credit availability: A frontier estimation approach

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  • Elliot Anenberg
  • Aurel Hizmo
  • Edward Kung
  • Raven Molloy

Abstract

We construct a new measure of mortgage credit availability using a technique developed for production frontier estimation. The resulting “loan frontier” describes the maximum amount obtainable by a borrower of given characteristics. We estimate this frontier using mortgage originations data from 2001 to 2014. We find a substantial expansion of mortgage credit for all borrowers during the housing boom, not only for low‐score or low‐income borrowers. The subsequent contraction in credit was most pronounced for low‐score borrowers. Using variation in the frontier across metropolitan areas over time, we show that borrowing constraints played an important role in the recent housing cycle.

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  • Elliot Anenberg & Aurel Hizmo & Edward Kung & Raven Molloy, 2019. "Measuring mortgage credit availability: A frontier estimation approach," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 34(6), pages 865-882, September.
    • Handle: RePEc:wly:japmet:v:34:y:2019:i:6:p:865-882
    DOI: 10.1002/jae.2720
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    2. S. Boragan Aruoba & Ronel Elul & Sebnem Kalemli Ozcan, 2022. "Housing Wealth and Consumption: The Role of Heterogeneous Credit Constraints," Working Papers 22-34, Federal Reserve Bank of Philadelphia.
    3. Griffin, John M. & Kruger, Samuel & Maturana, Gonzalo, 2021. "What drove the 2003–2006 house price boom and subsequent collapse? Disentangling competing explanations," Journal of Financial Economics, Elsevier, vol. 141(3), pages 1007-1035.
    4. Martin Cesnak & Jan Klacso & Roman Vasil, 2021. "Analysis of the Impact of Borrower-Based Measures," Working and Discussion Papers OP 3/2021, Research Department, National Bank of Slovakia.
    5. William D. Larson, 2022. "Effects of Mortgage Interest Rates on House Price Appreciation: The Role of Payment Constraints," FHFA Staff Working Papers 22-04, Federal Housing Finance Agency.
    6. Kelly, Robert & Mazza, Elena, 2019. "A Measure of Bindingness in the Irish Mortgage Market," Financial Stability Notes 12/FS/19, Central Bank of Ireland.
    7. Bhutta, Neil & Ringo, Daniel, 2021. "The effect of interest rates on home buying: Evidence from a shock to mortgage insurance premiums," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 195-211.

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