Measuring Mortgage Credit Availability: A Frontier Estimation Approach

Abstract

We construct a new measure of mortgage credit availability that describes the maximum amount obtainable by a borrower of given characteristics. We estimate this "loan frontier" using mortgage originations data from 2001 to 2014 and show that it reflects a binding borrowing constraint. Our estimates reveal that the expansion of mortgage credit during the housing boom was substantial for all borrowers, not only for low-score or low-income borrowers. The contraction was most pronounced for low-score borrowers. Using variation in the frontier across metropolitan areas over time, we show that borrowing constraints played an important role in the recent housing cycle.

Keywords: Constraints, Construction, Credit Availability, Frontier, House prices, Mortgages

JEL Classification: G21, R21, R31, D12, G10, R20