Liar's Loan? Effects of Origination Channel and Information Falsification on Mortgage Delinquency

Wei Jiang, Ashlyn Aiko Nelson and Edward Vytlacil
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Wei Jiang: Columbia Business School
Ashlyn Aiko Nelson: Indiana University

The Review of Economics and Statistics, 2014, vol. 96, issue 1, 1-18

Abstract: This paper presents an analysis of mortgage delinquency between 2004 and 2008 using a loan-level data set from a major national mortgage bank. Our analysis highlights two problems underlying the mortgage crisis: a reliance on mortgage brokers who tend to originate lower-quality loans and a prevalence of low-documentation loans—known in the industry as “liar's loans”—that result in borrower information falsification. While over three-quarters of the difference in delinquency rates between bank and broker channels can be attributed to observable loan and borrower characteristics, the delinquency difference between full- and low-documentation mortgages is due to unobservable heterogeneity, about half of it potentially due to income falsification. © 2014 The President and Fellows of Harvard College and the Massachusetts Institute of Technology

Keywords: mortgage delinquency; loans; mortgage banks (search for similar items in EconPapers)
JEL-codes: G21 R21 R31 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (79)

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