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The Effects of Mortgage Credit Availability : Evidence from Minimum Credit Score Lending Rules

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  • Steven Laufer
  • Andrew D. Paciorek

Abstract

Since the housing bust and financial crisis, mortgage lenders have introduced progressively higher minimum thresholds for acceptable credit scores. Using loan-level data, we document the introduction of these thresholds, as well as their effects on the distribution of newly originated mortgages. We then use the timing and nonlinearity of these supply-side changes to credibly identify their short- and medium-run effects on various individual outcomes. Using a large panel of consumer credit data, we show that the credit score thresholds have very large negative effects on borrowing in the short run, and that these effects attenuate over time but remain sizable up to four years later. The effects are particularly concentrated among younger adults and those living in middle-income or moderately black census tracts. In aggregate, we estimate that lenders' use of minimum credit scores reduced the total number of newly originated mortgages by about 2 percent in the years following the financial crisis. We also find that, among individuals who already had mortgages, retaining access to mortgage credit reduced delinquency on both mortgage and non-mortgage debt and increased their propensity to take out auto loans, but had little effect on migration across metropolitan areas.

Suggested Citation

  • Steven Laufer & Andrew D. Paciorek, 2016. "The Effects of Mortgage Credit Availability : Evidence from Minimum Credit Score Lending Rules," Finance and Economics Discussion Series 2016-098, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2016-98
    DOI: 10.17016/FEDS.2016.098
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    File URL: https://www.federalreserve.gov/econresdata/feds/2016/files/2016098pap.pdf
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    References listed on IDEAS

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    Cited by:

    1. Gete, Pedro, 2018. "Lending standards and macroeconomic dynamics," Working Paper Series 2207, European Central Bank.
    2. Bronson Argyle & Taylor D. Nadauld & Christopher Palmer, 2020. "Real Effects of Search Frictions in Consumer Credit Markets," NBER Working Papers 26645, National Bureau of Economic Research, Inc.
    3. Neil Bhutta & Jesse Bricker & Lisa J. Dettling & Jimmy Kelliher & Steven Laufer, 2019. "Stress Testing Household Debt," Finance and Economics Discussion Series 2019-008, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    Keywords

    Credit scores; Credit supply; Mortgages and credit; Residential Real Estate;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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