IDEAS home Printed from https://ideas.repec.org/p/fip/fedbwp/11-12.html

Further investigations into the origin of credit score cutoff rules

Author

Listed:
  • Ryan Bubb
  • Alex Kaufman

Abstract

Keys, Mukherjee, and Vig (2010a) argue that the evidence presented in Bubb and Kaufman (2009) is based on an inappropriate pooling of loans sold to private-label securitizers with loans sold to the government sponsored enterprises (GSEs). In this paper we investigate the issues raised by the authors and conclude that they do not change our basic analytical approach or conclusions. We examine samples that do not pool together loans sold to these two types of purchasers?a sample of loans bought by the GSEs, a sample of loans originated in 2008?2009 after the private-label market collapsed, and a sample of jumbo loans?and find discontinuities in the number and default rate of loans at credit score cutoffs in the absence of corresponding discontinuities in the securitization rate. We also examine a key assumption underlying their estimates?that no loans are both at risk of being sold to the GSEs and at risk of being sold to private-label securitizers?and show that the data are inconsistent with that assumption. We find that 18 percent of conforming loans in our sample at some time switched between GSE and private-label ownership, demonstrating that the GSEs and private-label securitizers competed for the same loans. Additionally, we show that lender screening cutoffs grew steadily over the period 1997?2010 during which the private-label market rose and collapsed.

Suggested Citation

  • Ryan Bubb & Alex Kaufman, 2011. "Further investigations into the origin of credit score cutoff rules," Working Papers 11-12, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:11-12
    as

    Download full text from publisher

    File URL: http://www.bostonfed.org/economic/wp/wp2011/wp1112.htm
    Download Restriction: no
    File URL: http://www.bostonfed.org/economic/wp/wp2011/wp1112.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Atif Mian & Amir Sufi, 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1449-1496.
    2. repec:oup:rfinst:v:25:y::i:7:p:2071-2108 is not listed on IDEAS
    3. Imbens, Guido W. & Lemieux, Thomas, 2008. "Regression discontinuity designs: A guide to practice," Journal of Econometrics, Elsevier, vol. 142(2), pages 615-635, February.
    4. McCrary, Justin, 2008. "Manipulation of the running variable in the regression discontinuity design: A density test," Journal of Econometrics, Elsevier, vol. 142(2), pages 698-714, February.
    5. 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, President and Fellows of Harvard College, vol. 125(1), pages 307-362.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ryan Bubb & Alex Kaufman, 2011. "Securitization and moral hazard: evidence from credit score cutoff rules," Public Policy Discussion Paper 11-6, Federal Reserve Bank of Boston.
    2. Bhardwaj, Geetesh & Sengupta, Rajdeep, 2014. "Subprime cohorts and loan performance," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 236-252.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ryan Bubb & Alex Kaufman, 2011. "Securitization and moral hazard: evidence from credit score cutoff rules," Public Policy Discussion Paper 11-6, Federal Reserve Bank of Boston.
    2. Joshua D. Angrist & Jörn-Steffen Pischke, 2010. "The Credibility Revolution in Empirical Economics: How Better Research Design Is Taking the Con out of Econometrics," Journal of Economic Perspectives, American Economic Association, vol. 24(2), pages 3-30, Spring.
    3. Baum-Snow, Nathaniel & Ferreira, Fernando, 2015. "Causal Inference in Urban and Regional Economics," Handbook of Regional and Urban Economics, in: Gilles Duranton & J. V. Henderson & William C. Strange (ed.), Handbook of Regional and Urban Economics, edition 1, volume 5, chapter 0, pages 3-68, Elsevier.
    4. Tao Chen & Yi Huang & Chen Lin & Zixia Sheng, 2022. "Finance and Firm Volatility: Evidence from Small Business Lending in China," Management Science, INFORMS, vol. 68(3), pages 2226-2249, March.
    5. Tor‐Erik Bakke & Toni M. Whited, 2012. "Threshold Events and Identification: A Study of Cash Shortfalls," Journal of Finance, American Finance Association, vol. 67(3), pages 1083-1111, June.
    6. Neil Bhutta, 2011. "The Community Reinvestment Act and Mortgage Lending to Lower Income Borrowers and Neighborhoods," Journal of Law and Economics, University of Chicago Press, vol. 54(4), pages 953-983.
    7. De Giorgi, Giacomo & Drenik, Andres & Seira Bejarano, Enrique, 2017. "Sequential Banking: Direct and Externality Effects on Delinquency," CEPR Discussion Papers 12280, Centre for Economic Policy Research.
    8. Jason M. Lindo & Nicholas J. Sanders & Philip Oreopoulos, 2010. "Ability, Gender, and Performance Standards: Evidence from Academic Probation," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 95-117, April.
    9. Marcel Fafchamps & Julien Labonne, 2017. "Do Politicians’ Relatives Get Better Jobs? Evidence from Municipal Elections," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 33(2), pages 268-300.
    10. Ivan A Canay & Vishal Kamat, 2018. "Approximate Permutation Tests and Induced Order Statistics in the Regression Discontinuity Design," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1577-1608.
    11. De Paola, Maria & Scoppa, Vincenzo, 2015. "Procrastination, academic success and the effectiveness of a remedial program," Journal of Economic Behavior & Organization, Elsevier, vol. 115(C), pages 217-236.
    12. Arteaga, Irma & Heflin, Colleen & Gable, Sara, 2016. "The impact of aging out of WIC on food security in households with children," Children and Youth Services Review, Elsevier, vol. 69(C), pages 82-96.
    13. Vladimir Asriyan & Victoria Vanasco, 2024. "Security Design in Non-Exclusive Markets with Asymmetric Information," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(2), pages 690-719.
    14. Bubb, Ryan & Kaufman, Alex, 2014. "Securitization and moral hazard: Evidence from credit score cutoff rules," Journal of Monetary Economics, Elsevier, vol. 63(C), pages 1-18.
    15. Humlum, Maria Knoth & Kristoffersen, Jannie H.G. & Vejlin, Rune, 2017. "College admissions decisions, educational outcomes, and family formation," Labour Economics, Elsevier, vol. 48(C), pages 215-230.
    16. Sanchez-Vidal, Maria, 2019. "Retail shocks and city structure," LSE Research Online Documents on Economics 103394, London School of Economics and Political Science, LSE Library.
    17. Marco Leonardi & Giovanni Pica, 2013. "Who Pays for it? The Heterogeneous Wage Effects of Employment Protection Legislation," Economic Journal, Royal Economic Society, vol. 123(12), pages 1236-1278, December.
    18. Bo Liu & James D. Shilling & Tien Foo Sing, 2020. "Large Banks and Efficient Banks: how Do they Influence Credit Supply and Default Risk?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 57(1), pages 1-28, February.
    19. Adam C. Sales & Ben B. Hansen, 2020. "Limitless Regression Discontinuity," Journal of Educational and Behavioral Statistics, , vol. 45(2), pages 143-174, April.
    20. Yuriy Gorodnichenko & Marianna Kudlyak & John Mondragon & Olivier Coibion, 2014. "Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data," 2014 Meeting Papers 402, Society for Economic Dynamics.

    More about this item

    Keywords

    ;
    ;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fip:fedbwp:11-12. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Spozio (email available below). General contact details of provider: https://edirc.repec.org/data/frbbous.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.