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Comparing patterns of default among prime and subprime mortgages

  • Eugene Amromin
  • Anna L. Paulson
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    This article compares default patterns among prime and subprime mortgages, analyzes the factors correlated with default, and examines how forecasts of defaults are affected by alternative assumptions about trends in home prices. The authors find that extremely pessimistic forecasts of home price appreciation could have generated predictions of subprime defaults that were closer to the actual default experience for loans originated in 2006 and 2007. However, for prime loans one would have also had to anticipate that defaults would become much more sensitive to home prices.

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    Article provided by Federal Reserve Bank of Chicago in its journal Economic Perspectives.

    Volume (Year): (2009)
    Issue (Month): Q II ()
    Pages: 18-37

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    Handle: RePEc:fip:fedhep:y:2009:i:qii:p:18-37:n:v.33no.2
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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.
    2. Kristopher S. Gerardi & Adam Hale Shapiro & Paul S. Willen, 2007. "Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures," Working Papers 07-15, Federal Reserve Bank of Boston.
    3. Souphala Chomsisengphet & Anthony Pennington-Cross, 2006. "The evolution of the subprime mortgage market," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-56.
    4. Giovanni Dell'Ariccia & Luc Laeven & Deniz Igan, 2008. "Credit Booms and Lending Standards: Evidence From the Subprime Mortgage Market," IMF Working Papers 08/106, International Monetary Fund.
    5. repec:oup:qjecon:v:125:y:2010:i:1:p:307-362 is not listed on IDEAS
    6. Danielle DiMartino & John V. Duca, 2007. "The rise and fall of subprime mortgages," Economic Letter, Federal Reserve Bank of Dallas, vol. 2(nov).
    7. Patrick Bajari & Chenghuan Sean Chu & Minjung Park, 2008. "An Empirical Model of Subprime Mortgage Default From 2000 to 2007," NBER Working Papers 14625, National Bureau of Economic Research, Inc.
    8. 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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