Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/200593
Authors: 
Dokko, Jane K.
Keys, Benjamin J.
Relihan, Lindsay E.
Year of Publication: 
2019
Series/Report no.: 
Working Paper 2019-01
Abstract: 
At their peak in 2005, roughly 60 percent of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier access to credit through teaser interest rates, interest-only or negative amortization periods, and extended payment terms, have been the subject of much regulatory and popular criticism. In this paper, we construct a novel county-level dataset to analyze the relationship between rising house prices and non-traditional features of mortgage contracts. We apply a break-point methodology and find that in housing markets with breaks in the mid-2000s, a strong rise in the use of non-traditional mortgages preceded the start of the housing boom. Furthermore, their rise was coupled with declining denial rates and a shift from FHA to subprime mortgages. Our findings support the view that a change in mortgage contract availability and a shift toward subprime borrowers helped to fuel the rise of house prices during the last decade.
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Document Type: 
Working Paper
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