The consequences of mortgage credit expansion evedence from the u s mortgage default crisis
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The consequences of mortgage credit expansion evedence from the u s mortgage default crisis
THE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ty analysis using detailed zip code level data to document new findings regarding the origins of the biggest financial crisis since the Great Depression. The recent sharp increase ill mortgage defaults is significantly amplified 111 subprime zip codes, or zip codes with a disproportionately large sh The consequences of mortgage credit expansion evedence from the u s mortgage default crisis are of subprime borrowers as of 1996. Prior to the default crisis, these subprime zip codes experience an unprecedented relative growth in mortgage crThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
edit The expansion 111 mortgage credit from 2002 to 2005 to subprime zip codes occurs despite sharply declining relative (and 111 some cases absolute)THE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis negatively correlated We show that the expansion in mortgage credit to subprime zip codes and Its dissociation from income growth is closely correlated with the increase in securitization of subprime mortgages. Finally, we show that all of our key findings hold in markets with very elastic housing The consequences of mortgage credit expansion evedence from the u s mortgage default crisis supply that have low house price growth during the credit expansion years.♦We gratefully acknowledge financial support from the Initiative on Global MThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
arkets at Chicago GSB and the IBM Corporation. The data analysis was made possible by the generous help of Myra Hart. Jim Powers. Robert Shillcr. CameTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ashyap. Larry Katz. Mitchell Petersen. Ragliu Rajan. Josh Rauh. Andrei Shleifer. Clemens Siahn. Nicholas Souleles. Jeremy Stein. Paul Willen. Luigi Zingales. and participants at the Chicago GSB finance and applied economics seminars. UC-Bcrkcley. Emory University. Boston College, the University of M The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ichigan, the Federal Reserve Banks of Chicago. Philadelphia. New York, and San Francisco, the IMF. the NBER Corporate Finance. Monetary Economics. RisThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
k of Financial Institutions. and Capital Markets and the Economy conferences, and the NYU-Moodys Conference on Credit Risk for comments and feedback WTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis http, facultv.chicag02sb.edu atifmian.research OnlineAppendLxMongageCrisis.pdf ■ Mian: C"3)834 8266..rifijc’.ucagogsbcdli Sufi;;-.:; -.lit;chicagog^b eduElectronic copy available at: h tpj/ssm com/abshacte 1072304The sharp rise in U.S. mortgage default rates has led to the most severe financial cris The consequences of mortgage credit expansion evedence from the u s mortgage default crisis is since the Great Depression A salient feature of the mortgage default crisis is that it is concentrated in subprime zip codes throughout the entireThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
country. A comparison of subprune and prime zip codes, which are defined to be zip codes ill the highest and lowest quartile based on the fraction of THE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis an three times as large as prime zip codes 111 the same metropolitan area.1 These same subprime neighborhoods experience a historic increase in mortgage credit from 2002 to 2005, experiencing credit growth that is more than twice as high as the growth m prime zip codes. Moreover, the luiprecedented The consequences of mortgage credit expansion evedence from the u s mortgage default crisis growth in subprime credit is not a regional phenomenon; instead, it exists in almost every metropolitan area of the Unites States.Explanations foi theThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
extraordinary subpl line mortgage growth and its concurrent house price increases have varied remarkably over time. In the aftermath of the crisis, eTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ization. However, during the credit expansion, many established voices attributed the growth 111 mortgage credit and housing prices to fundamental economic improvements such as productivity and income gains2Oiu goal 111 this analysis IS to empirically examine the competing explanations for the subpr The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ime mortgage expansion and the subsequent default crisis. Any such analysis requires micro-level data to test the competing hypotheses: as we demonstrThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
ate below, the use of more aggiegated data can lead to erroneous conclusions. In this regard, we have the unique advantage■All of the statistics mentiTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis and prune zip codes within the top fort}' MSAs 111 the United States.■See foi example. Fedeial Reseive Chairman Alan Greenspan's testimony to the U.S. Congress on June 9a. 2005. or Council of Economic Advisors Chairman Beu Bernanke's testimony to the U.S. Congress on October 20u‘ 2005.1Electronic co The consequences of mortgage credit expansion evedence from the u s mortgage default crisis py .available Bt: hrfpj//ssnfncontfattsttacts 10723041of a detailed data set with information at the zip code level on credit, house prices, defaults,The consequences of mortgage credit expansion evedence from the u s mortgage default crisis
income. mid Ollier demographic V ariables. 1 he geographical detail of Olli data helps US to uncover a number of important new facts. Tn addition, byTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis pansion.We outline three potential explanations for the expansion m mortgage credit to subprime zip codes from 2002 to 2005. First, the income prospects of subprime borrowers may have improved ill the early 2000s. We classify this and similar explanations based on improvements in the credit-worthine The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ss of subprime borrowers as income-based hypothesesSecond, the expansion of credit to subprime borrowers may have been caused by an outward shift in tThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
he supply of mortgage credit by lenders. There are a variety of potential reasons for such a shift: greater diversification of risk, greater subsidizaTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis we refer to explanations that an outward shift 111 the supply of mortgage credit may have caused the subprime mortgage expansion as supply-based hypotheses.Ihiid. lenders’ increased expectations of future house price growth may have been responsible for the increase in subprime mortgage credit. High The consequences of mortgage credit expansion evedence from the u s mortgage default crisis er house price growth expectations lower (he estimated losses given default for a lender, thereby enabling the lender to target riskier clients. We reThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
fer to such explanations as house price expecĩations-basedhypotheses.Let us now illustrate why it is necessary to have detailed micro-level data to seTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis ountry ■ rhe top left plot in 1'igurc 1 shows•' We use MSA level data ill our example, because tills is the most widely used level of analysis ill studies involving nation-wide housing markets.2dĩtectronic copy avsitfcbte Et: ttttp//ss!Tncom/atistractt 1072304evidence consistent with the income-base The consequences of mortgage credit expansion evedence from the u s mortgage default crisis d hypothesis: Income growth during the subprune mortgage expansion period (2002-2005) is stronger in MSAs with a higher share of subpl ime consumers.The consequences of mortgage credit expansion evedence from the u s mortgage default crisis
Similarly, credit growth is positively related to both the fraction of subprime borrowers (top-middle panel) and income growth (top-right panel). TakeTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis anel of Figure I shows why such an interpretation - based on MSA level data - may be misleading. Using >vithin-MSA variation in (he zip code level data, the bottom left panel of Figure I shows that zip codes with a higher fraction of subprime borrowers experience negative relative income growth from The consequences of mortgage credit expansion evedence from the u s mortgage default crisis 2002 to 2005 In other words, the positive correlation between subprime population share and income growth at the MSA level may be spurious: MSAs withThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
a greater share of subprime population grow fester, but the income growth IS concentrated among prune segments of the population that did not experieTHE CONSEQUENCES OF MORTGAGE CREDIT EXPANSION: EVIDENCE FROM THE U.S. MORTGAGE DEFAULT CRISISATIF MIAN and AMIR SUFIAbstractWe conduct a withill-count The consequences of mortgage credit expansion evedence from the u s mortgage default crisis odes. The first two plots 111 the bottom panel lead to an unusual result: income growth and credit growth are statistically significantly negatively correlated from 2002 to 2005 (bottom-right panel)Figure I illustrates the power of the zip level dataset. It enables US to dispute the incomebased hypo The consequences of mortgage credit expansion evedence from the u s mortgage default crisis thesis for subprime mortgage growth which would lie mistakenly supported by MSA level data. In fact, a further breakdown of the zip code patterns reveThe consequences of mortgage credit expansion evedence from the u s mortgage default crisis
als that even subprune zip■ One possible explanation for the positive conelation between income-growth and subprime population share at the MSA levelGọi ngay
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