NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis

Atif Mian, Amir Sufi

NBER Working Paper No. 13936
Issued in April 2008
NBER Program(s):   CF

We demonstrate that a rapid expansion in the supply of mortgages driven by disintermediation explains a large fraction of recent U.S. house price appreciation and subsequent mortgage defaults. We identify the effect of shifts in the supply of mortgage credit by exploiting within-county variation across zip codes that differed in latent demand for mortgages in the mid 1990s. From 2001 to 2005, high latent demand zip codes experienced large relative decreases in denial rates, increases in mortgages originated, and increases in house price appreciation, despite the fact that these zip codes experienced significantly negative relative income and employment growth over this time period. These patterns for high latent demand zip codes were driven by a sharp relative increase in the fraction of loans sold by originators shortly after origination, a process which we refer to as "disintermediation." The increase in disintermediation-driven mortgage supply to high latent demand zip codes from 2001 to 2005 led to subsequent large increases in mortgage defaults from 2005 to 2007. Our results suggest that moral hazard on behalf of originators selling mortgages is a main culprit for the U.S. mortgage default crisis.

download in pdf format
   (394 K)

email paper

A non-technical summary of this paper is available in the May 2008 NBER digest.  You can sign up to receive the NBER Digest by email.

This paper is available as PDF (394 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Atif Mian & Amir Sufi, 2008. "Summary of "the consequences of mortgage credit expansion"," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 129-132.

Users who downloaded this paper also downloaded these:
Reinhart and Rogoff w13761 Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison
Taylor w14631 The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong
Mian and Sufi w15896 Household Leverage and the Recession of 2007 to 2009
Mian and Sufi w15283 House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis
Mian, Sufi, and Trebbi w14468 The Political Economy of the U.S. Mortgage Default Crisis
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us