Alternative Lending Channels and the Crisis in U.S. Housing Markets

Abstract

To what degree has the development of alternative mortgage funding channels promoted the recent boom and bust in U.S. housing markets? Past research examined whether Alt-A and subprime market shares are correlated with the housing bubble. This paper expands the analysis to include the share of specific 'alternative' lending terms and finds that the shares of interest-only and negative amortization loans are important factors in explaining the housing bubble. This result suggests that research on the housing market bubble should focus on the impacts of loan contract terms rather than loan channel.

Keywords: House prices, Credit cycles, Asset bubbles

JEL Classification: R3, E31, G01