Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/70704
Authors: 
Gerardi, Kristopher
Shapiro, Adam Hale
Willen, Paul S.
Year of Publication: 
2009
Series/Report no.: 
Working Paper, Federal Reserve Bank of Atlanta 2009-25
Abstract: 
We estimate a model of foreclosure using a data set that includes every residential mortgage, purchase-and-sale, and foreclosure transaction in Massachusetts from 1989 to 2008. We address the identification issues related to the estimation of the effects of house prices on residential foreclosures. We then use the model to study the dramatic increase in foreclosures that occurred in Massachusetts between 2005 and 2008 and conclude that the foreclosure crisis was primarily driven by the severe decline in housing prices that began in the latter part of 2005, not by a relaxation of underwriting standards on which much of the prevailing literature has focused. We argue that relaxed underwriting standards did severely aggravate the crisis by creating a class of homeowners who were particularly vulnerable to the decline in prices. But, as we show in our counterfactual analysis, that emergence alone, in the absence of a price collapse, would not have resulted in the substantial foreclosure boom that was experienced.
Subjects: 
foreclosure
mortgage
house prices
JEL: 
D11
D12
G21
Document Type: 
Working Paper

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