Understanding the subprime mortgage crisis
AbstractWe analyze the subprime mortgage crisis: an unusually large fraction of subprime mortgages originated in 2006 being delinquent or in foreclosure only months later. We utilize a loan-level database, covering about half of all US subprime mortgages, and identify two major causes. First, over the past five years, high loan-to-value borrowers increasingly became high-risk borrowers, in terms of elevated delinquency and foreclosure rates. Lenders were aware of this and adjusted mortgage rates accordingly over time. Second, the below-average house price appreciation in 2006-2007 further contributed to the crisis.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Supervisory Policy Analysis Working Papers with number 2007-05.
Date of creation: 2007
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-11-24 (All new papers)
- NEP-RMG-2007-11-24 (Risk Management)
- NEP-URE-2007-11-24 (Urban & Real Estate Economics)
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