What role did piggyback lending play in the housing bubble and mortgage collapse?

Michael LaCour-Little, Charles A. Calhoun and Wei Yu

Journal of Housing Economics, 2011, vol. 20, issue 2, 81-100

Abstract: We examine the use of simultaneous close junior lien lending ("piggybacks") over the course of the recent housing bubble and subsequent mortgage market collapse. Using both state-level and Zip code-level data over the period 2001-2008, we find that the fraction of piggyback originations is related to higher foreclosure and default rates in subsequent years, and this relation is strongest for non-owner-occupied properties. The pattern, however, appears to be limited to the use of subprime piggybacks, rather than a more general phenomenon. Using a topology-based housing supply elasticity measure as an instrument for house price growth, we further confirm that the strong association of subprime piggyback origination with worse loan performance was not driven by the endogeneity of house price appreciation.

Keywords: Mortgage; Foreclosure; Housing; Piggyback; lending (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jhouse:v:20:y:2011:i:2:p:81-100

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