A New Look at Second Liens
In: Housing and the Financial Crisis
We use data from credit report and deeds records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with small down payments. At the top of the housing market second liens were quite prevalent, with as many as 45 percent of home purchases in coastal markets and bubble locations involving a piggyback second lien. Owner-occupants were more likely to use piggyback second liens than investors. Second liens in the form of home equity lines of credit (HELOCs) were originated to relatively high quality borrowers and originations were declining near the peak of the housing boom. By contrast, characteristics of closed end second liens (CES) were worse on all these dimensions. Default rates of second liens are generally similar to that of the first lien on the same home, although HELOCs perform better than CES. About 20 to 30 percent of borrowers will continue to pay their second lien for more than a year while remaining seriously delinquent on their first mortgage. By comparison, about 40 percent of credit card borrowers and 70 percent of auto loan borrowers will continue making payments a year after defaulting on their first mortgage. Finally, we show that delinquency rates on second liens, especially HELOCs, have not declined as quickly as for most other types of credit, raising a potential concern for lenders with large portfolios of second liens on their balance sheet.
(This abstract was borrowed from another version of this item.)
|This chapter was published in: ||This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number
12623.||Handle:|| RePEc:nbr:nberch:12623||Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Andra C. Ghent & Marianna Kudlyak, 2011. "Recourse and Residential Mortgage Default: Evidence from US States 1," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3139-3186.
- Christopher J. Mayer & Edward Morrison & Tomasz Piskorski & Arpit Gupta, 2011.
"Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide,"
NBER Working Papers
17065, National Bureau of Economic Research, Inc.
- Christopher Mayer & Edward Morrison & Tomasz Piskorski & Arpit Gupta, 2014. "Mortgage Modification and Strategic Behavior: Evidence from a Legal Settlement with Countrywide," American Economic Review, American Economic Association, vol. 104(9), pages 2830-57, September.
- Donghoon Lee & Wilbert van der Klaauw, 2010. "An introduction to the FRBNY Consumer Credit Panel," Staff Reports 479, Federal Reserve Bank of New York.
- Ethan Cohen-Cole & Jonathan Morse, 2009. "Your house or your credit card, which would you choose?: personal delinquency tradeoffs and precautionary liquidity motives," Risk and Policy Analysis Unit Working Paper QAU09-5, Federal Reserve Bank of Boston.
- Andrew Caplin & Anna Cororaton & Joseph Tracy, 2012. "Is the FHA Creating Sustainable Homeownership?," NBER Working Papers 18190, National Bureau of Economic Research, Inc.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberch:12623. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.