The Effects of Mortgage Credit Availability: Evidence from Minimum Credit Score Lending Rules

Steven Laufer () and Andrew D. Paciorek
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Andrew D. Paciorek: https://www.federalreserve.gov/econres/andrew-d-paciorek.htm

No 2016-098, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Since the housing bust and financial crisis, mortgage lenders have introduced progressively higher minimum thresholds for acceptable credit scores. Using loan-level data, we document the introduction of these thresholds, as well as their effects on the distribution of newly originated mortgages. We then use the timing and nonlinearity of these supply-side changes to credibly identify their short- and medium-run effects on various individual outcomes. Using a large panel of consumer credit data, we show that the credit score thresholds have very large negative effects on borrowing in the short run, and that these effects attenuate over time but remain sizable up to four years later. The effects are particularly concentrated among younger adults and those living in middle-income or moderately black census tracts. In aggregate, we estimate that lenders' use of minimum credit scores reduced the total number of newly originated mortgages by about 2 percent in the years following the financial crisis. We also find that, among individuals who already had mortgages, retaining access to mortgage credit reduced delinquency on both mortgage and non-mortgage debt and increased their propensity to take out auto loans, but had little effect on migration across metropolitan areas.

Keywords: Credit scores; Credit supply; Mortgages and credit; Residential Real Estate (search for similar items in EconPapers)
JEL-codes: D12 D14 G21 R3 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2016-12-08
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-98

DOI: 10.17016/FEDS.2016.098

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