Working Paper

Understanding the subprime mortgage crisis

Abstract: We analyze the subprime mortgage crisis: an unusually large fraction of subprime mortgages originated in 2006 being delinquent or in foreclosure only months later. We utilize a loan-level database, covering about half of all US subprime mortgages, and identify two major causes. First, over the past five years, high loan-to-value borrowers increasingly became high-risk borrowers, in terms of elevated delinquency and foreclosure rates. Lenders were aware of this and adjusted mortgage rates accordingly over time. Second, the below-average house price appreciation in 2006-2007 further contributed to the crisis.

Keywords: Subprime mortgage; Mortgage loans;

Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Supervisory Policy Analysis Working Papers

Publication Date: 2007

Number: 2007-05