LIAR'S LOAN? EFFECTS OF ORIGINATION CHANNEL AND INFORMATION FALSIFICATION ON MORTGAGE DELINQUENCY

This paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan-level data set from a major national mortgage bank. Our analysis highlights two problems underlying the mortgage crisis: a reliance on mortgage brokers who tend to originate lowerquality loans and a prevalence...

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Bibliographic Details
Published in:The review of economics and statistics 2014-03, Vol.96 (1), p.1-18
Main Authors: Jiang, Wei, Nelson, Ashlyn Aiko, Vytlacil, Edward
Format: Article
Language:English
Subjects:
Adjusted gross income
Bank loans
Banks
Borrowing
Delinquency
Documentation
Economic crisis
Economic potential
False information
Liar loans
Loan brokers
Loan rates
Loans
Mortgage brokers
Mortgage delinquency
Mortgage loans
Mortgages
Studies
Subprime loans
U.S.A
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Summary:This paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan-level data set from a major national mortgage bank. Our analysis highlights two problems underlying the mortgage crisis: a reliance on mortgage brokers who tend to originate lowerquality loans and a prevalence of low-documentation loans—known in the industry as "liar's loans"—that result in borrower information falsification. While over three-quarters of the difference in delinquency rates between bank and broker channels can be attributed to observable loan and borrower characteristics, the delinquency difference between full-and low-documentation mortgages is due to unobservable heterogeneity, about half of it potentially due to income falsification.
ISSN:0034-6535
1530-9142
DOI:10.1162/REST_a_00387