Testing for Fraud in the Residential Mortgage Market: How Much Did Early-Payment-Defaults Overpay for Housing?

Paul Carrillo

The Journal of Real Estate Finance and Economics, 2013, vol. 47, issue 1, 36-64

Abstract: Current explanations for the high rate of default and foreclosure in the U.S. emphasize house price fluctuations and lax lending criteria. Another explanation for default and foreclosure, which has generally been neglected in the academic literature but not by the FBI, is fraud. One impediment to identifying and measuring fraud is the lack of statistical tests capable of detecting it. This paper proposes a simple method to detect transactions where fraud may have occurred. The models proposed here are important for at least three reasons. First they can document the role of fraud in the mortgage foreclosure crisis. Second, they can serve as part of a forensic effort designed to detect and deter mortgage fraud. Third, they demonstrate that mortgage fraud distorts house price indexes because it artificially elevates house prices during the period of fraud followed by a subsequent collapse due to the foreclosure sales. Accordingly, fraud can give the false impression that foreclosure lowers area house prices when it actually artificially inflates them. This suggests an alternative interpretation for the recent empirical literature on externalities from foreclosure. Copyright Springer Science+Business Media, LLC 2013

Keywords: Foreclosure; Mortgage fraud; Home prices; Hedonic model; D11; D12; G21; R20 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11146-011-9343-y (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:jrefec:v:47:y:2013:i:1:p:36-64

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11146/PS2

DOI: 10.1007/s11146-011-9343-y

Access Statistics for this article

The Journal of Real Estate Finance and Economics is currently edited by Steven R. Grenadier, James B. Kau and C.F. Sirmans

More articles in The Journal of Real Estate Finance and Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().