The Effects of Mortgage Credit Availability: Evidence from Minimum Credit Score Lending Rules

55 Pages Posted: 19 Dec 2016

See all articles by Steven Laufer

Steven Laufer

Board of Governors of the Federal Reserve System

Andrew Paciorek

Board of Governors of the Federal Reserve System

Date Written: 2016-12-08

Abstract

Since the housing bust and financial crisis, mortgage lenders have introduced progressively higher minimum thresholds for acceptable credit scores. Using loan-level data, we document the introduction of these thresholds, as well as their effects on the distribution of newly originated mortgages. We then use the timing and nonlinearity of these supply-side changes to credibly identify their short- and medium-run effects on various individual outcomes. Using a large panel of consumer credit data, we show that the credit score thresholds have very large negative effects on borrowing in the short run, and that these effects attenuate over time but remain sizable up to four years later. The effects are particularly concentrated among younger adults and those living in middle-income or moderately black census tracts. In aggregate, we estimate that lenders' use of minimum credit scores reduced the total number of newly originated mortgages by about 2 percent in the years following the financial crisis. We also find that, among individuals who already had mortgages, retaining access to mortgage credit reduced delinquency on both mortgage and non-mortgage debt and increased their propensity to take out auto loans, but had little effect on migration across metropolitan areas.

Keywords: Credit scores, Credit supply, Mortgages and credit, Residential Real Estate

JEL Classification: D14, G21, D12, R3

Suggested Citation

Laufer, Steven and Paciorek, Andrew, The Effects of Mortgage Credit Availability: Evidence from Minimum Credit Score Lending Rules (2016-12-08). FEDS Working Paper No. 2016-098. Available at SSRN: https://ssrn.com/abstract=2887002 or http://dx.doi.org/10.17016/FEDS.2016.098

Steven Laufer (Contact Author)

Board of Governors of the Federal Reserve System ( email )

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Andrew Paciorek

Board of Governors of the Federal Reserve System ( email )

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