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Risky Borrowers or Risky Mortgages Disaggregating Effects Using Propensity Score Models

Lei Ding (), Roberto G. Quercia, Wei Li and Janneke Ratcliffe
Additional contact information
Lei Ding: Wayne State University
Roberto G. Quercia: University of North Carolina
Wei Li: Center for Responsible Lending
Janneke Ratcliffe: University of North Carolina

Journal of Real Estate Research, 2011, vol. 33, issue 2, 245-278

Abstract: In this research, we examine the relative risk of subprime mortgages and a sample of community reinvestment loans originated through the Community Advantage Program (CAP). Using the propensity score matching method, we construct a sample of comparable borrowers with similar risk characteristics but holding the two different loan products. We find that the sample of community reinvestment loans have a lower default risk than subprime loans, very likely because they are not originated by brokers and lack risky features such as adjustable rates and prepayment penalties. Results suggest that similar borrowers holding more sustainable products exhibit significantly lower default risks.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 2011
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