Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom

72 Pages Posted: 23 May 2020

See all articles by James Conklin

James Conklin

University of Georgia

W. Scott Frame

affiliation not provided to SSRN

Kristopher S. Gerardi

affiliation not provided to SSRN

Haoyang Liu

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: May, 2020

Abstract

An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–2006 U.S. house price boom. By contrast, this paper documents a robust, negative correlation between the growth in the share of purchase mortgages to subprime borrowers and house price appreciation at the county-level during this time. Using two different instrumental variables approaches, we also establish causal evidence that house price appreciation lowered the share of purchase loans to subprime borrowers. Further analysis using micro-level credit bureau data shows that higher house price appreciation lowered the transition rate into first-time homeownership for subprime individuals. Finally, the paper documents that subprime borrowers did not play a significant role in the increased speculative activity and underwriting fraud that the literature has linked directly to the housing boom. Taken together, these results are more consistent with subprime borrowers being priced out of housing boom markets rather than inflating prices in those markets.

Keywords: mortgages, subprime, house prices, credit scores, housing boom

JEL Classification: D14, D18, D53, G21, G38

Suggested Citation

Conklin, James and Frame, W. Scott and Gerardi, Kristopher S. and Liu, Haoyang, Villains or Scapegoats? The Role of Subprime Borrowers in Driving the U.S. Housing Boom (May, 2020). FRB of Dallas Working Paper No. 2013, Available at SSRN: https://ssrn.com/abstract=3607731 or http://dx.doi.org/10.24149/wp2013

James Conklin (Contact Author)

University of Georgia ( email )

Athens, GA 30602-6254
United States

W. Scott Frame

affiliation not provided to SSRN

No Address Available

Kristopher S. Gerardi

affiliation not provided to SSRN

No Address Available

Haoyang Liu

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

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