Working Paper: NBER ID: w23502
Authors: Manuel Adelino; Antoinette Schoar; Felipe Severino
Abstract: This paper documents a number of key facts about the evolution of mortgage debt, homeownership, debt burden and subsequent delinquency during the recent housing boom and Great Recession. We show that the mortgage expansion was shared across the entire income distribution, i.e. the flow and stock of debt rose across all income groups (except for the top 5%). The mortgage expansion was especially pronounced in areas with increased house prices, and the speed at which houses turned over (churn) in these areas went up significantly. However, the average loan-to-value ratios (LTV) at origination did not increase over the boom period. While homeownership rates increased for the middle and upper income households, there was no increase in homeownership for the lowest income groups. Finally, default rates post-crisis went up predominantly in areas with large house price drops, especially for high income and high- FICO borrowers. These results are consistent with a view that the run up in mortgage debt over the pre-crisis period was driven by rising home values and expectations of increasing prices.
Keywords: housing debt; mortgage; homeownership; delinquency; housing crisis
JEL Codes: G01; G1; G18; G20; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| house prices (R31) | mortgage credit expansion (G21) |
| rising house prices (R31) | increased borrowing (H74) |
| increased borrowing (H74) | defaults (Y60) |
| inflated house price expectations (E31) | underestimated potential losses (J17) |
| relaxed credit standards (G21) | disproportionate credit flows to subprime borrowers (F65) |
| house price drops (R31) | increased default rates (G33) |
| market conditions (P42) | borrowing behavior (G51) |
| high house appreciation areas (R31) | increased delinquencies (G33) |