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The prevalence and impact of misstated incomes on mortgage loan applications

Author Info

  • Blackburn, McKinley L.
  • Vermilyea, Todd

Abstract

Misstatement of income on mortgage loan applications (the “liar-loan” problem) is thought to have been a contributor to the boom and bust of mortgage markets. We provide nationwide measurements that reflect the degree to which incomes on mid-2000 home-purchase mortgage loan applications were overstated relative to the actual incomes of mortgage applicants. Our results suggest a substantial degree of income overstatement in 2005 and 2006, one consistent with the average mortgage application overstating income 15–20%. We find the tendency to misstate income was associated with markets with large home-price increases during the boom. There is little support for the proposition that income overstatement played a substantial role in subsequent mortgage defaults.

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File URL: http://www.sciencedirect.com/science/article/pii/S1051137712000241
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Article provided by Elsevier in its journal Journal of Housing Economics.

Volume (Year): 21 (2012)
Issue (Month): 2 ()
Pages: 151-168

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Handle: RePEc:eee:jhouse:v:21:y:2012:i:2:p:151-168
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

Keywords: Mortgage lending; Liar loans; Housing crisis;

Find related papers by JEL classification:

  • G01 - Financial Economics - - General - - - Financial Crises
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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  1. 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.
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  5. Joshua D. Angrist, 1998. "Estimating the Labor Market Impact of Voluntary Military Service Using Social Security Data on Military Applicants," Econometrica, Econometric Society, vol. 66(2), pages 249-288, March.
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  12. Mark Doms & Frederick T. Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco.
  13. John Krainer & Elizabeth Laderman, 2009. "Mortgage loan securitization and relative loan performance," Working Paper Series 2009-22, Federal Reserve Bank of San Francisco.
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