Mortgage Product Substitution and State Anti-predatory Lending Laws: Better Loans and Better Borrowers?

Bostic, Raphael W.; Chomsisengphet, Souphala; Engel, Kathleen C.; McCoy, Patricia A.; Pennington‐Cross, Anthony; Wächter, Susan M.

doi:10.1007/s11293-012-9325-3

Cited by 25 publications

(19 citation statements)

References 9 publications

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“…Subprime mortgages are loans made to borrowers with low credit score (variously defined as below 680, 640 or 620). Many NTMs were originated to subprime borrowers and many subprime borrowers used NTMs (Bostic et al 2012). The correlation between the share of NTM and the share of subprime mortgages at the county level is 0.7 based on the data and definition used in this paper.…”

Section: Introductionmentioning

confidence: 92%

Homeownership and Nontraditional and Subprime Mortgages

Acolin

Bostic

et al. 2017

Housing Policy Debate

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This article documents the growth and geographic distribution of nontraditional mortgages (NTMs) and subprime mortgages during 2000-2006, and examines the association between these products and homeownership at the county level between 2000 and 2012. It finds a significant relationship between the origination of NTM and subprime mortgages during the boom and changes in the number of homeowners (positive during the 2000-2006 period and negative during the 2006-2012 period) but no significant relationship with the change in the homeownership rate. Looking at specific categories of the population, the results indicate a positive relationship between the presence of NTMs and subprime mortgages and increased numbers of homeowners for young households as well as for low income and minority households, but the relationship is smaller than for the general population. Overall, the relationship between NTMs and homeownership is stronger than the relationship between subprime mortgages and homeownership during the boom and it is less negative during the bust.

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Section: Introductionmentioning

confidence: 92%

Homeownership and Nontraditional and Subprime Mortgages

Acolin

Bostic

et al. 2017

Housing Policy Debate

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“…While these numbers are suggestive of a change in the pecking order of consumer defaults, they do not account for the fact that not all consumers are at risk of defaulting on all product types. For instance, the rise in multiple‐product defaults could, at least in principle, be a result of greater penetration of different products in the population over time (see e.g., Bostic et al Forthcoming).…”

Section: Empirical Analysismentioning

confidence: 99%

“…Recently, Bajari, Chu, and Park (2010) find that borrowers who default on their nonprime mortgage have a much higher payment‐to‐income ratio. While lenders have tried to enhance affordability by substituting traditional mortgage products with exotic mortgage products such as a teaser rate and/or interest‐only mortgage (see Bostic et al Forthcoming), one of the consequences of the increased concentration of mortgage‐related debt was that for many consumers the costs of servicing a mortgage increased, relative to other types of credits, when contract rate or interest‐only period reset. Pennington‐Cross and Ho (2010) find that these type of mortgages default at a higher rate when interest rates reset.…”

mentioning

confidence: 99%

The Changing Pecking Order of Consumer Defaults

Andersson¹,

Chomsisengphet²,

Glennon³

et al. 2013

J of Money Credit Banking

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In the wake of the recent housing and financial crisis, many have argued that consumers are defaulting on their mortgage for strategic reasons, either because they are "underwater" or to preserve access to credit from other types of debt products, in order to maintain their consumption of other essential goods. In this paper, we examine the extent to which nonprime mortgage borrowers prioritize payments on their monthly mortgage over credit card debt obligations over a 9-year period (2001-09). Before the recent financial crisis, our default order data suggest that consumers were eight times more likely to prioritize payments on mortgage debt over credit card payments. As of late 2008, in contrast, the similar consumers were just as likely to default on mortgage debt as on credit card debt. Our results reveal that important explanations for the observed changes in the pecking order of defaults include: strategic mortgage default behavior among consumers with low and negative housing equity, illiquidity in the form of available credit, the rising costs of servicing mortgage debt, and lowered underwriting standards and the greater penetration of nontraditional mortgage products. These results support the importance of strategic consumer behavior, but also emphasize that the changes in the pecking order of defaults have come about because of ability-to-pay considerations.JEL codes: D12, G21, R31

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“…For a detailed analysis of the impact of the state anti-predatory lending laws on the type of mortgage products used in the market, seeBostic et al (2008).…”

mentioning

confidence: 99%