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Title:Juvenile delinquent mortgages: Bad credit or bad economy? PDF Logo
Authors:Haughwout, Andrew
Peach, Richard
Tracy, Joseph
Issue Date:2008
Series/Report no.:Staff Report, Federal Reserve Bank of New York 341
Abstract:We study early default, defined as serious delinquency or foreclosure in the first year, among nonprime mortgages from the 2001 to 2007 vintages. After documenting a dramatic rise in such defaults and discussing their correlates, we examine two primary explanations: changes in underwriting standards that took place over this period and changes in the economic environment. We find that while credit standards were important in determining the probability of an early default, changes in the economy after 2004-especially a sharp reversal in house price appreciation-were the more critical factor in the increase in default rates. A notable additional result is that despite our rich set of covariates, much of the increase remains unexplained, even in retrospect. Thus, the fact that the credit markets seemed surprised by the rate of early defaults in the 2006 and 2007 nonprime vintages becomes more understandable.
Subjects:Housing
mortgage default
subprime mortgages
JEL:G21
R21
Document Type:Working Paper
Appears in Collections:Staff Reports, Federal Reserve Bank of New York

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