The Rise in Mortgage Defaults
By Christopher J. Mayer, Karen M. Pence, S. Sherlund. 2008
669 citations recorded by the source corpus.
The first hints of trouble in the mortgage market surfaced in mid-2005, and conditions subsequently began to deteriorate rapidly. Mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as "subprime" or "near-prime." The main factors underlying the rise in mortgage defaults appear to be declines in house prices and deteriorated underwriting standards, in particular an increase in loan-to-value ratios and in the share of mortgages with little or no documentation of income. Contrary to popular perception, the growth in unconventional mortgages products, such as those with prepayment penalties, interest-only periods, and teaser interest rates, does not appear to be a significant factor in defaults through mid-2008 because borrowers who had problems with these products could refinance into different mortgages. However, as markets realized the extent of the poor underwriting, underwriting standards tightened and borrowers began to face difficulties refinancing; this dynamic suggests that these unconventional products could pose problems going forward.
Subfields: Accounting, Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/3fe526becafc8e787f9afee0155d5ffc3dcd16be
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In Accounting
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In Economics and Econometrics
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In Finance
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Citations in the corpus
- Who Facilitated Misreporting in Securitized Loans (2016, result): “To ensure that our misrepresentation variable is not simply capturing a correlation with some other aspect of loan riskiness, we control for the typical determinants of loan performance found in previous literature (Mayer et al. (2009)).”
- Housing Bubbles: A Survey (2011, neutral): “However, data from subprime and alt-a loans suggest that investors represented a small proportion of total transactions (Mayer et al. 2009).”
- CEO Power and Risk Taking: Evidence from the Subprime Lending Industry (2012, positive): “Researchers provide empirical verification of the increasing riskiness of this type of lending due to deteriorating underwriting standards, finding large increases in loans with undocumented income, lower collateral requirements and higher loan-to-value ratios since 2001 (Demyanyk & Van Hemert, 2011”
- Financial Crises: Theory and Evidence (2009, background): “Mayer, Pence and Sherlund (2009) and Nadauld and Sherlund”
- Safer Ratios, Riskier Portfolios: Banks’ Response to Government Aid (2014, positive): “20 We refer to banks' investments in higher-yield mortgages, an asset class whose performance has been shown to be highly sensitive to common macroeconomic risk factors (Hayre, Saraf, Young, and Chen, 2008; Mayer, Pence, and Sherlund, 2009).”
- Financial Literacy, Present Bias and Alternative Mortgage Products (2017, neutral): “It is widely accepted that mortgage market failure has played an important role in mortgage decisions in the subprime mortgage market in the US (Mayer et al., 2009; Bernanke, 2010; Einav et al., 2012; Gerardi et al., 2013; Ghent, 2015).”
- The global financial crisis: How similar? How different? How costly? (2010, neutral): “5 Mayer et al. (2009) document that mortgage defaults and delinquencies are particularly concentrated among borrowers whose mortgages are classified as subprime or near prime.”