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The prevalence and impact of misstated incomes on mortgage loan applications

  • Blackburn, McKinley L.
  • Vermilyea, Todd

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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622881

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  1. 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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  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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