Did Dubious Mortgage Origination Practices Distort House Prices?

Griffin, John M.; Maturana, Gonzalo

doi:10.2139/ssrn.2485308

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Did Dubious Mortgage Origination Practices Distort House Prices?

27th Australasian Finance and Banking Conference 2014 Paper

55 Pages Posted: 23 Aug 2014 Last revised: 17 Jan 2016

See all articles by John M. Griffin

John M. Griffin

University of Texas at Austin - Department of Finance

Gonzalo Maturana

Emory University - Goizueta Business School

Date Written: January 2016

Abstract

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.

Keywords: housing bubble, misreporting, mortgage originators, bad practices

JEL Classification: G21, G23, R30, R31

Suggested Citation: Suggested Citation

Griffin, John M. and Maturana, Gonzalo, Did Dubious Mortgage Origination Practices Distort House Prices? (January 2016). 27th Australasian Finance and Banking Conference 2014 Paper, Available at SSRN: https://ssrn.com/abstract=2485308 or http://dx.doi.org/10.2139/ssrn.2485308