Affordability, Financial Innovation, and the Start of the Housing Boom

Jane K. Dokko, Benjamin Keys and Lindsay E. Relihan

No WP-2019-1, Working Paper Series from Federal Reserve Bank of Chicago

Abstract: At their peak in 2005, roughly 60 percent of all purchase mortgage loans originated in the United States contained at least one non-traditional feature. These features, which allowed borrowers easier access to credit through teaser interest rates, interest-only or negative amortization periods, and extended payment terms, have been the subject of much regulatory and popular criticism. In this paper, we construct a novel county-level dataset to analyze the relationship between rising house prices and non-traditional features of mortgage contracts. We apply a break-point methodology and find that in housing markets with breaks in the mid-2000s, a strong rise in the use of non-traditional mortgages preceded the start of the housing boom. Furthermore, their rise was coupled with declining denial rates and a shift from FHA to subprime mortgages. Our findings support the view that a change in mortgage contract availability and a shift toward subprime borrowers helped to fuel the rise of house prices during the last decade.

Keywords: Housing-policy; mortgage loans; subprime mortgages (search for similar items in EconPapers)
JEL-codes: G22 R21 R22 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2019-01-31
New Economics Papers: this item is included in nep-ban and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
https://www.chicagofed.org/~/media/publications/wo ... 19/wp2019-01-pdf.pdf Full text (application/pdf)

Related works:
Working Paper: Affordability, financial innovation and the start of the housing boom (2019)
Working Paper: Affordability, financial innovation and the start of the housing boom (2019)
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:fip:fedhwp:wp-2019-01

Ordering information: This working paper can be ordered from

DOI: 10.21033/wp-2019-01

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of Chicago Contact information at EDIRC.
Bibliographic data for series maintained by Lauren Wiese ().