SSRN Home Search and Download Papers Browse Abstract and Paper Submission Subscribe to Networks View Briefcase Top Papers Top Authors Top Institutions

 

Abstract

 
 

References (39)

Beta

 
 

Citations (1)

Beta

 


 


Download | Share | Email | Add to Briefcase | Buy Hard Copy

Financial Constraints, Inflated Home Prices, and Borrower Default during the Real-Estate Boom

Itzhak Ben-David
Ohio State University - Finance Department, Fisher College of Business


June 1, 2009

Fisher College of Business Working Paper No. 2009-03-001
Charles A. Dice Center Working Paper No. 2009-1

Abstract:     
During the housing boom, many subprime home buyers were not able to make a mortgage down payment and therefore were at risk of being rationed from the market. To resolve the issue, some buyers, sellers and intermediaries arti cially expanded the scope of transactions by including items that cannot be collateralized. As a result, observed house prices were higher and mortgages larger, ultimately relaxing buyers' fi nancial constraints. I estimate that between 2005 and 2008, up to 16% of highly leveraged (> 95% loan-to-value) transactions in Cook County, Illinois were inflated (with prices higher by 6% to 15%). Inflated transactions are more likely in low-income neighborhoods and when intermediaries have a high stake in the transaction. Although borrowers were twice as likely to default, their mortgage rates were not higher.

Keywords: Manipulation, Fraud, Moral Hazard, Agency Costs,Delegated Monitoring, Mortgage, Collateral, Appraisal, Valuation, Debt, Bank, Financial Intermediation, Cheating, Mortgage, Subprime, Lending, Capital Market, Real-Estate, Forensic Economics, Overpaying, Fannie Mae, Loan buyers, Borrower, Lender

JEL Classifications: D12, D18, G21, L85

Working Paper Series

Date posted: March 25, 2008 ; Last revised: July 06, 2009

Suggested Citation

Ben-David, Itzhak, Financial Constraints, Inflated Home Prices, and Borrower Default during the Real-Estate Boom (June 1, 2009). Fisher College of Business Working Paper No. 2009-03-001; Charles A. Dice Center Working Paper No. 2009-1. Available at SSRN: http://ssrn.com/abstract=991387


Export to: Export Citation What's this?

Contact Information

Itzhak Ben-David (Contact Author)
Ohio State University - Finance Department, Fisher College of Business ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm
Feedback to SSRN (Beta)


Paper statistics
Abstract Views: 3,660
Downloads: 996
Download Rank: 4,854
References: 39
Citations: 1

© 2009 Social Science Electronic Publishing, Inc. All Rights Reserved. Terms of Use  Privacy Policy
This page was served by apollo2 in 0.110 seconds.