Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures

Kristopher Gerardi, Adam Shapiro and Paul Willen

No 07-15, Working Papers from Federal Reserve Bank of Boston

Abstract: This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989?2007 period using a competing risks, proportional hazard framework. We present two main findings. First, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as experiences that begin with prime purchase mortgages. Second, house price appreciation plays a dominant role in generating foreclosures. In fact, we attribute most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in the summer of 2005.

Keywords: Mortgage loans - Massachusetts; Foreclosure - Massachusetts; Home ownership - Massachusetts (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-ure
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Citations: View citations in EconPapers (121)

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Working Paper: Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures (2008)
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