Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures
This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989–2007 period using a competing risks, proportional hazard framework. We present two main findings. First, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as experiences that begin with prime purchase mortgages. Second, house price appreciation plays a dominant role in generating foreclosures. In fact, we attribute most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in the summer of 2005.
|Date of creation:||2007|
|Date of revision:|
|Contact details of provider:|| Postal: 600 Atlantic Avenue, Boston, Massachusetts 02210|
Web page: http://www.bos.frb.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- John P. Herzog & James S. Earley, 1970. "Home Mortgage Delinquency and Foreclosure," NBER Books, National Bureau of Economic Research, Inc, number herz70-1, March.
- Karl E. Case & Robert J. Shiller, 1987.
"Prices of Single Family Homes Since 1970: New Indexes for Four Cities,"
Cowles Foundation Discussion Papers
851, Cowles Foundation for Research in Economics, Yale University.
- Karl E. Case & Robert J. Shiller, 1987. "Prices of single-family homes since 1970: new indexes for four cities," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 45-56.
- Karl E. Case & Robert J. Shiller, 1987. "Prices of Single Family Homes Since 1970: New Indexes for Four Cities," NBER Working Papers 2393, National Bureau of Economic Research, Inc.
- Anthony Pennington-Cross & Giang Ho, 2006.
"The termination of subprime hybrid and fixed rate mortgages,"
2006-042, Federal Reserve Bank of St. Louis.
- Anthony Pennington-Cross & Giang Ho, 2010. "The Termination of Subprime Hybrid and Fixed-Rate Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 38(3), pages 399-426.
- Kau, James B, et al, 1995. "The Valuation at Origination of Fixed-Rate Mortgages with Default and Prepayment," The Journal of Real Estate Finance and Economics, Springer, vol. 11(1), pages 5-36, July.
- Kau James B. & Keenan Donald C. & Kim Taewon, 1994. "Default Probabilities for Mortgages," Journal of Urban Economics, Elsevier, vol. 35(3), pages 278-296, May.
- Alicia H. Munnell, 1992.
"Mortgage lending in Boston: interpreting HMDA data,"
92-7, Federal Reserve Bank of Boston.
- Munnell, Alicia H. & Geoffrey M. B. Tootell & Lynn E. Browne & James McEneaney, 1996. "Mortgage Lending in Boston: Interpreting HMDA Data," American Economic Review, American Economic Association, vol. 86(1), pages 25-53, March.
- von Furstenberg, George M, 1969. "Default Risk on FHA-Insured Home Mortgages as a Function of the Terms of Financing: A Quantitative Analysis," Journal of Finance, American Finance Association, vol. 24(3), pages 459-77, June.
- McCall, B.P., 1993.
"Unemployment Insurance Rules, Joblessness, and Part-Time Work,"
93-07, Minnesota - Industrial Relations Center.
- McCall, Brian P, 1996. "Unemployment Insurance Rules, Joblessness, and Part-Time Work," Econometrica, Econometric Society, vol. 64(3), pages 647-82, May.
- Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
- Yongheng Deng & John M. Quigley, 2003.
"Woodhead Behavior and the Pricing of Residential Mortgages,"
8616, USC Lusk Center for Real Estate.
- Deng, Yongheng & Quigley, John M., 2004. "Woodhead Behavior and the Pricing of Residential Mortgages," Berkeley Program on Housing and Urban Policy, Working Paper Series qt85q0w8xj, Berkeley Program on Housing and Urban Policy.
- Marsha J. Courchane & Brian J. Surette & Peter M. Zorn, 2004. "Subprime Borrowers: Mortgage Transitions and Outcomes," The Journal of Real Estate Finance and Economics, Springer, vol. 29(4), pages 365-392, December.
When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:07-15. 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: (Catherine Spozio)
If references are entirely missing, you can add them using this form.