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Fraudulent Income Overstatement on Mortgage Applications During the Credit Expansion of 2002 to 2005

Listed author(s):
  • Atif Mian
  • Amir Sufi
Registered author(s):

    Treating fraudulently overstated income on mortgage applications as true income can lead to incorrect conclusions on the nature of the mortgage credit supply expansion toward marginal borrowers from 2002 to 2005. A positive gap between zip-code-level income growth calculated from mortgage applications and income growth from the IRS likely reflects mortgage fraud, not an improvement in home-buyer income. In support of the credit supply view, mortgage credit for home purchase expanded significantly more in low-credit-score neighborhoods on both the extensive and intensive margins from 2002 to 2005, even though these neighborhoods deteriorated on many measures of income prospects.

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    File URL: http://hdl.handle.net/10.1093/rfs/hhw104
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    Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

    Volume (Year): 30 (2017)
    Issue (Month): 6 ()
    Pages: 1832-1864

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    Handle: RePEc:oup:rfinst:v:30:y:2017:i:6:p:1832-1864.
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    1. Justiniano, Alejandro & Primiceri, Giorgio E. & Tambalotti, Andrea, 2014. "Credit Supply and the Housing Boom," Working Paper Series WP-2014-21, Federal Reserve Bank of Chicago, revised 01 Mar 2014.
    2. John M. Griffin & Gonzalo Maturana, 2016. "Did Dubious Mortgage Origination Practices Distort House Prices?," Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1671-1708.
    3. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, Oxford University Press, vol. 124(4), pages 1449-1496.
    4. Avery, Robert B. & Bhutta, Neil & Brevoort, Kenneth P. & Canner, Glenn B., 2012. "The Mortgage Market in 2011: Highlights from the Data Reported under the Home Mortgage Disclosure Act," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue December, pages 1-46.
    5. Benjamin J. Keys & Amit Seru & Vikrant Vig, 2012. "Lender Screening and the Role of Securitization: Evidence from Prime and Subprime Mortgage Markets," Review of Financial Studies, Society for Financial Studies, vol. 25(7), pages 2071-2108.
    6. Tomasz Piskorski & Amit Seru & James Witkin, 2015. "Asset Quality Misrepresentation by Financial Intermediaries: Evidence from the RMBS Market," Journal of Finance, American Finance Association, vol. 70(6), pages 2635-2678, December.
    7. Zingales, Luigi, 2015. "Does Finance Benefit Society?," CEPR Discussion Papers 10350, C.E.P.R. Discussion Papers.
    8. Stephanie Schmitt-Grohé & Martín Uribe, 2016. "Downward Nominal Wage Rigidity, Currency Pegs, and Involuntary Unemployment," Journal of Political Economy, University of Chicago Press, vol. 124(5), pages 1466-1514.
    9. Itzhak Ben-David, 2011. "Financial Constraints and Inflated Home Prices during the Real Estate Boom," American Economic Journal: Applied Economics, American Economic Association, vol. 3(3), pages 55-87, July.
    10. 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.
    11. Benjamin J. Keys & Tanmoy Mukherjee & Amit Seru & Vikrant Vig, 2010. "Did Securitization Lead to Lax Screening? Evidence from Subprime Loans," The Quarterly Journal of Economics, Oxford University Press, vol. 125(1), pages 307-362.
    12. Manuel Adelino & Antoinette Schoar & Felipe Severino, 2016. "Editor's Choice Loan Originations and Defaults in the Mortgage Crisis: The Role of the Middle Class," Review of Financial Studies, Society for Financial Studies, vol. 29(7), pages 1635-1670.
    13. Luigi Zingales, 2015. "Presidential Address: Does Finance Benefit Society?," Journal of Finance, American Finance Association, vol. 70(4), pages 1327-1363, August.
    14. Mark J. Garmaise, 2015. "Borrower Misreporting and Loan Performance," Journal of Finance, American Finance Association, vol. 70(1), pages 449-484, February.
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