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Understanding the Subprime Mortgage Crisis

Yuliya S. Demyanyk

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Otto Van Hemert


December 5, 2008

Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and macroeconomic conditions. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005.

Number of Pages in PDF File: 40

Keywords: mortgage, subprime, delinquency, foreclosure

JEL Classification: D12, G12, G21

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Date posted: October 10, 2007 ; Last revised: June 20, 2009

Suggested Citation

Demyanyk, Yuliya S. and Van Hemert, Otto, Understanding the Subprime Mortgage Crisis (December 5, 2008). Available at SSRN: https://ssrn.com/abstract=1020396 or http://dx.doi.org/10.2139/ssrn.1020396

Contact Information

Yuliya S. Demyanyk
Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )
Research Department
East 6th & Superior
Cleveland, OH 44101-1387
United States
HOME PAGE: http://www.clevelandfed.org/Research/Economists/Demyanyk
Otto Van Hemert (Contact Author)
Man AHL ( email )
Riverbank House
2 Swan Lane
London, EC4R 3AD
United Kingdom
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