Bowling Alone, Buying Alone: The Decline of Co-borrowers in the US Mortgage Market

Abstract

Using the universe of mortgage applications data in the US, we document that since the early 1990s there was a significant decline in the share of mortgages with a co-borrower. The decline, despite being a universal phenomenon across the US, evinced significant spatial heterogeneity and contributed to the divergence in economic outcomes across different regions. We show that the presence of a co-borrower reduces the mortgage default probability by more than 50 percent for both prime and subprime mortgages and those regions that had a lower co-borrower share prior to the financial crisis experienced higher mortgage default rates over the period 2007-2010. Further, a lower co-borrower share at the local level was related to persistently lower house price growth, refinancing growth and mortgage credit growth.

Keywords: Mortgage market, Co-borrowers, Mortgage Default, House prices, Lending standards

JEL Classification: G21, G51, R21