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The prevalence and impact of misstated incomes on mortgage loan applications

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  • 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.

Suggested Citation

  • Blackburn, McKinley L. & Vermilyea, Todd, 2012. "The prevalence and impact of misstated incomes on mortgage loan applications," Journal of Housing Economics, Elsevier, vol. 21(2), pages 151-168.
  • Handle: RePEc:eee:jhouse:v:21:y:2012:i:2:p:151-168
    DOI: 10.1016/j.jhe.2012.04.003
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    Cited by:

    1. Atif Mian & Amir Sufi, 2017. "Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005," Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 1832-1864.
    2. Zhenyu Gao & Michael Sockin & Wei Xiong, 2019. "Economic Consequences of Housing Speculation," NBER Working Papers 26457, National Bureau of Economic Research, Inc.

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    More about this item

    Keywords

    Mortgage lending; Liar loans; Housing crisis;
    All these keywords.

    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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