Religion and Mortgage Misrepresentation

Abstract

We investigate whether religion acts as a deterrent to the types of mortgage misrepresentation that played a significant role in the recent housing boom and bust. Using a large sample of mortgages originated from 2000 to 2007, we provide evidence that local religious adherence (religiosity) is associated with a lower likelihood of appraisal overstatement and owner occupancy misreporting. The evidence on income misrepresentation is mixed. Religiosity does not appear to reduce the incidence of income misrepresentation; however, it seems to restrain the degree to which income is misrepresented. Our results are generally consistent with the hypothesis that religion, as a set of social norms, fosters ethical behavior, and possibly risk aversion, in the mortgage market.

Keywords: Mortgage Fraud, Ethical Behavior, Religion, Risk Aversion, Appraisal Bias, Owner Occupancy Misreporting, Income Documentation, Liars Loans

JEL Classification: G21, G31,G32, R3