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What role did piggyback lending play in the housing bubble and mortgage collapse?

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  • LaCour-Little, Michael
  • Calhoun, Charles A.
  • Yu, Wei

Abstract

We examine the use of simultaneous close junior lien lending ("piggybacks") over the course of the recent housing bubble and subsequent mortgage market collapse. Using both state-level and Zip code-level data over the period 2001-2008, we find that the fraction of piggyback originations is related to higher foreclosure and default rates in subsequent years, and this relation is strongest for non-owner-occupied properties. The pattern, however, appears to be limited to the use of subprime piggybacks, rather than a more general phenomenon. Using a topology-based housing supply elasticity measure as an instrument for house price growth, we further confirm that the strong association of subprime piggyback origination with worse loan performance was not driven by the endogeneity of house price appreciation.

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  • LaCour-Little, Michael & Calhoun, Charles A. & Yu, Wei, 2011. "What role did piggyback lending play in the housing bubble and mortgage collapse?," Journal of Housing Economics, Elsevier, vol. 20(2), pages 81-100, June.
    • Handle: RePEc:eee:jhouse:v:20:y:2011:i:2:p:81-100
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    2. Marsha J. Courchane & Stephen L. Ross, 2019. "Evidence and Actions on Mortgage Market Disparities: Research, Fair Lending Enforcement, and Consumer Protection," Housing Policy Debate, Taylor & Francis Journals, vol. 29(5), pages 769-794, September.
    3. Anundsen, André Kallåk & Heebøll, Christian, 2016. "Supply restrictions, subprime lending and regional US house prices," Journal of Housing Economics, Elsevier, vol. 31(C), pages 54-72.
    4. Stephen D. Oliner & Morris A. Davis & Will Larson, 2019. "Mortgage risk since 1990," AEI Economics Working Papers 1001502, American Enterprise Institute.
    5. Stephen L. Ross & Yuan Wang, 2022. "Mortgage Lenders and the Geographic Concentration of Foreclosures," Working Papers 2022-001, Human Capital and Economic Opportunity Working Group.
    6. Natacha Postel-Vinay, 2014. "Debt Dilution in 1920s America: Lighting the Fuse of a Mortgage Crisis," Working Papers 0053, European Historical Economics Society (EHES).
    7. Fernando Ferreira & Joseph Gyourko, 2015. "A New Look at the U.S. Foreclosure Crisis: Panel Data Evidence of Prime and Subprime Borrowers from 1997 to 2012," NBER Working Papers 21261, National Bureau of Economic Research, Inc.
    8. Jakučionytė, Eglė & Singh, Swapnil, 2022. "Bowling alone, buying alone: The decline of co-borrowers in the US mortgage market," Journal of Housing Economics, Elsevier, vol. 58(PB).
    9. Michael LaCour-Little & Wei Yu & Libo Sun, 2014. "The Role of Home Equity Lending in the Recent Mortgage Crisis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(1), pages 153-189, March.
    10. Stacy, Christina Plerhoples & Theodos, Brett & Bai, Bing, 2018. "How to prevent mortgage default without skin in the game: Evidence from an integrated homeownership support nonprofit," Journal of Housing Economics, Elsevier, vol. 39(C), pages 17-24.
    11. Egle Jakucionyte & Swapnil Singh, 2020. "Bowling Alone, Buying Alone: The Decline of Co-Borrowers in the US Mortgage Market," Bank of Lithuania Working Paper Series 78, Bank of Lithuania.
    12. Ahmed S. Abou-Zaid & Tesa Leonce, 2014. "Religious Pluralism, yet a Homogenous Stance on Interest Rate: The Case of Judaism, Christianity, and Islam," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(2), June.
    13. James P. Dow, 2016. "Mortgage originations during 2002-2007 as an example of an evolutionary market," Journal of Evolutionary Economics, Springer, vol. 26(5), pages 1007-1032, December.
    14. James Kau & Donald Keenan & Constantine Lyubimov, 2014. "First Mortgages, Second Mortgages, and Their Default," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 561-588, May.
    15. Anundsen, André Kallåk & Heebøll, Christian, 2013. "Supply Restrictions, Subprime Lending and Regional US Housing Prices," Memorandum 04/2013, Oslo University, Department of Economics.

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