The Role of Home Equity Lending in the Recent Mortgage Crisis

Real Estate Economics, Forthcoming

Posted: 8 Aug 2012  

Michael LaCour-Little

California State University at Fullerton

Wei Yu

California State Polytechnic University, Pomona

Libo Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department

Multiple version iconThere are 2 versions of this paper

Date Written: August 7, 2012

Abstract

Home equity lending grew rapidly from 2000 to 2008 with balances more than tripling. In this paper, we examine the role this phenomenon may have played in increasing aggregate default risk during the mortgage crisis. We also document a relationship between growth in home equity lending and high house price depreciation and first mortgage default during the downturn of 2006 to 2009. Line of credit growth is shown to be associated with large increases in non-owner-occupied property purchase, suggesting that home equity lines of credit were tapped to fund such investments, exacerbating default rates during the market downturn.

Keywords: mortgage, default, housing, home equity lending

JEL Classification: G01, G21, R31

Suggested Citation

LaCour-Little, Michael and Yu, Wei and Sun, Libo, The Role of Home Equity Lending in the Recent Mortgage Crisis (August 7, 2012). Real Estate Economics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2126189

Michael LaCour-Little (Contact Author)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Wei Yu

California State Polytechnic University, Pomona ( email )

3801 W. Temple Avenue Pomona
Pomona, CA 91768
United States

Libo Alice Sun

California State Polytechnic University, Pomona - Finance, Real Estate and Law Department ( email )

United States

Paper statistics

Abstract Views
327