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The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis


Atif R. Mian


Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Amir Sufi


University of Chicago - Booth School of Business; NBER

December 12, 2008


Abstract:     
We conduct a within-county analysis using detailed zip code level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression. The recent sharp increase in mortgage defaults is significantly amplified in subprime zip codes, or zip codes with a disproportionately large share of subprime borrowers as of 1996. Prior to the default crisis, these subprime zip codes experience an unprecedented relative growth in mortgage credit. The expansion in mortgage credit from 2002 to 2005 to subprime zip codes occurs despite sharply declining relative (and in some cases absolute) income growth in these neighborhoods. In fact, 2002 to 2005 is the only period in the last eighteen years when income and mortgage credit growth are negatively correlated. We show that the expansion in mortgage credit to subprime zip codes and its dissociation from income growth is closely correlated with the increase in securitization of subprime mortgages. Finally, we show that all of our key findings hold in markets with very elastic housing supply that have low house price growth during the credit expansion years.

Number of Pages in PDF File: 54

Keywords: subprime, sub-prime, mortgages, default crisis, disintermediation, defaults, consumer credit, credit supply, credit expansion

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Date posted: December 17, 2007 ; Last revised: December 29, 2008

Suggested Citation

Mian, Atif R. and Sufi, Amir, The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis (December 12, 2008). Available at SSRN: http://ssrn.com/abstract=1072304 or http://dx.doi.org/10.2139/ssrn.1072304

Contact Information

Atif R. Mian (Contact Author)
Princeton University - Department of Economics ( email )
Princeton, NJ 08544-1021
United States
Princeton University - Woodrow Wilson School of Public and International Affairs ( email )
Princeton University
Princeton, NJ 08544-1021
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Amir Sufi
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
NBER
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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