The Rise in Mortgage Defaults
The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.” The main factors underlyin...
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| Veröffentlicht in: | The Journal of economic perspectives 2009, Vol.23 (1), p.27-50 |
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| creator | Mayer, Christopher Pence, Karen Sherlund, Shane M. |
| description | The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.” The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward. |
| doi_str_mv | 10.1257/jep.23.1.27 |
| format | Article |
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Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.” The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. 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Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as “subprime” or “near-prime.” The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward.</abstract><cop>Nashville</cop><pub>American Economic Association</pub><doi>10.1257/jep.23.1.27</doi><tpages>24</tpages><oa>free_for_read</oa></addata></record> |
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| source | Jstor Complete Legacy; Elektronische Zeitschriftenbibliothek - Frei zugängliche E-Journals; American Economic Association Web; EBSCOhost Business Source Complete |
| subjects | Bankers associations Bankruptcy Credit scores Debt management Default Delinquency Documentation Down payments Financial crisis Foreclosure Housing market Housing prices Interest rates Investors Lenders Loan defaults Loan payments Loans Mortgage banks Mortgage loans Mortgage markets Mortgages Prepayment penalty Real estate financing Refinancing Securitization Studies Subprime lending Subprime loans Subprime mortgages Symposium: Early Stages of the Credit Crunch U.S.A Underwriting |
| title | The Rise in Mortgage Defaults |
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