Did Dubious Mortgage Origination Practices Distort House Prices?
John M. Griffin
University of Texas at Austin - Department of Finance
Emory University - Goizueta Business School
27th Australasian Finance and Banking Conference 2014 Paper
ZIP codes with high concentrations of originators who misreported mortgage information experienced a 75% larger relative increase in house prices from 2003 to 2006 and a 90% larger relative decrease from 2007 to 2012 compared to other ZIP codes. Several causality tests show that high fractions of dubious originators in a ZIP code lead to large price distortions. Originators with high misreporting gave credit to borrowers with high ex-ante risk, yet further understated the borrowers' true risk. Overall, excess credit facilitated through dubious origination practices explain much of the regional variation in house prices over a decade.
Number of Pages in PDF File: 55
Keywords: housing bubble, misreporting, mortgage originators, bad practices
JEL Classification: G21, G23, R30, R31
Date posted: August 23, 2014 ; Last revised: January 17, 2016