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Risky mortgages and mortgage default premiums (2010).
| Content Provider | CiteSeerX |
|---|---|
| Author | Krainer Leroy, Stephen |
| Abstract | Mortgage lenders impose a default premium on the loans they originate to compensate for the possibility that borrowers won’t make payments. The housing boom of the 2000s was characterized by increasing riskiness of the borrowers approved for mortgages and the structures of the loans themselves. Despite these changes in risk, a pricing model can justify the spreads contained in mortgages made during this period based on what at the time seemed to be reasonable expectations for house price appreciation. Contrary to those expectations, prices fell dramatically. One of the enduring questions about the housing market of the past decade is the role of lax lender underwriting standards and pricing of risk in the lead-up to the collapse of home prices and wave of defaults that began in 2007. This Economic Letter seeks to shed light on those issues by examining how lenders price the risk that a mortgage borrower will default. Specifically, we look at how default premiums behaved during the housing boom years of the past decade. Declining standards and loan prices Throughout the housing market boom of the 2000s, the risk characteristics of the average mortgage borrower steadily increased. Moreover, mortgage loans themselves became riskier. Subprime loans as a |
| File Format | |
| Publisher Date | 2010-01-01 |
| Access Restriction | Open |
| Subject Keyword | Risky Mortgage Mortgage Default Premium Past Decade Default Premium Mortgage Borrower Pricing Model Lax Lender Underwriting Standard Lender Price Average Mortgage Risk Characteristic Mortgage Loan Housing Boom Year Housing Market Make Payment Mortgage Lender Reasonable Expectation Subprime Loan Loan Price Economic Letter Enduring Question Housing Boom House Price Appreciation Home Price Housing Market Boom |
| Content Type | Text |
