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Subprime mortgages and the housing bubble

Jan Brueckner (), Paul S. Calem and Leonard Nakamura ()

Journal of Urban Economics, 2012, vol. 71, issue 2, 230-243

Abstract: This paper explores the link between the house-price expectations of mortgage lenders and the extent of subprime lending. It argues that bubble conditions in the housing market are likely to spur subprime lending, with favorable price expectations easing the default concerns of lenders and thus increasing their willingness to extend loans to risky borrowers. Since the demand created by subprime lending feeds back onto house prices, such lending also helps to fuel an emerging housing bubble. These ideas are illustrated in a theoretical model, and tentative support is found in empirical work exploring the connection between price expectations and the extent of subprime lending.

Keywords: Subprime; Default; Mortgage; Bubble (search for similar items in EconPapers)
JEL-codes: R00 G21 (search for similar items in EconPapers)
Date: 2012
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Working Paper: Subprime mortgages and the housing bubble (2011) Downloads
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