TY  - JOUR
AU  - Mian,Atif
AU  - Sufi,Amir
TI  - The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13936
PY  - 2008
Y2  - April 2008
UR  - http://www.nber.org/papers/w13936
L1  - http://www.nber.org/papers/w13936.pdf
N1  - Author contact info:
Atif R. Mian
University of California, Berkeley
Haas School of Business
545 Student Services
Berkeley, CA 94720
Tel: 510/643-1425
Fax: 510/643-1425
E-Mail: atif@haas.berkeley.edu

Amir Sufi
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-6148
Fax: 773/702-0458
E-Mail: amir.sufi@chicagobooth.edu
AB  - 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.
ER  -