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The prevalence and impact of misstated incomes on mortgage loan applications

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Listed author(s):
  • 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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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
DOI: 10.1016/j.jhe.2012.04.003
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 Gerardi & Andreas Lehnert & Shane M. Sherlund & Paul Willen, 2008. "Making Sense of the Subprime Crisis," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 69-159.
  2. Green, Richard K., 2008. "Imperfect information and the housing finance crisis: A descriptive overview," Journal of Housing Economics, Elsevier, vol. 17(4), pages 262-271, December.
  3. Foote, Christopher L. & Gerardi, Kristopher & Goette, Lorenz & Willen, Paul S., 2008. "Just the facts: An initial analysis of subprime's role in the housing crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 291-305, December.
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  5. Mark Doms & Frederick T. Furlong & John Krainer, 2007. "Subprime mortgage delinquency rates," Working Paper Series 2007-33, Federal Reserve Bank of San Francisco.
  6. Christopher Mayer & Karen Pence & Shane M. Sherlund, 2009. "The Rise in Mortgage Defaults," Journal of Economic Perspectives, American Economic Association, vol. 23(1), pages 27-50, Winter.
  7. Haughwout, Andrew & Peach, Richard & Tracy, Joseph, 2008. "Juvenile delinquent mortgages: Bad credit or bad economy?," Journal of Urban Economics, Elsevier, vol. 64(2), pages 246-257, September.
  8. 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.
  9. John Krainer & Elizabeth Laderman, 2009. "Mortgage loan securitization and relative loan performance," Working Paper Series 2009-22, Federal Reserve Bank of San Francisco.
  10. Francisca Richter, 2008. "An analysis of foreclosure rate differentials in soft markets," Working Paper 0811, Federal Reserve Bank of Cleveland.
  11. Grover, Michael & Smith, Laura & Todd, Richard M., 2008. "Targeting foreclosure interventions: An analysis of neighborhood characteristics associated with high foreclosure rates in two Minnesota counties," Journal of Economics and Business, Elsevier, vol. 60(1-2), pages 91-109.
  12. Ashcraft, Adam B. & Schuermann, Til, 2008. "Understanding the Securitization of Subprime Mortgage Credit," Foundations and Trends(R) in Finance, now publishers, vol. 2(3), pages 191-309, June.
  13. Sanders, Anthony, 2008. "The subprime crisis and its role in the financial crisis," Journal of Housing Economics, Elsevier, vol. 17(4), pages 254-261, December.
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