Credit Booms and Lending Standards: Evidence From the Subprime Mortgage Market

Giovanni Dell'ariccia, Luc Laeven and Deniz Igan

No 2008/106, IMF Working Papers from International Monetary Fund

Abstract: This paper links the current sub-prime mortgage crisis to a decline in lending standards associated with the rapid expansion of this market. We show that lending standards declined more in areas that experienced larger credit booms and house price increases. We also find that the underlying market structure mattered, with entry of new, large lenders triggering declines in lending standards by incumbent banks. Finally, lending standards declined more in areas with higher mortgage securitization rates. The results are consistent with theoretical predictions from recent financial accelerator models based on asymmetric information, and shed light on the relationship between credit booms and financial instability.

Keywords: WP; denial rate; subprime market; lending standard; subprime mortgage lender; subprime mortgage market; credit boom; lending standards; mortgages; subprime loans; moral hazard; financial accelerators; market share; Loans; Housing prices; Personal income; Credit booms (search for similar items in EconPapers)
Pages: 37
Date: 2008-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (237)

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Related works:
Journal Article: Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market (2012)
Journal Article: Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market (2012)
Working Paper: Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market (2009)
Working Paper: Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market (2009)
Working Paper: Credit Booms and Lending Standards: Evidence From The Subprime Mortgage Market (2008)
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