What role did piggyback lending play in the housing bubble and mortgage collapse?

Eyes Wide Shut? The Moral Hazard of Mortgage Insurers during the Housing Boom

“…A likely reason for the increased use of piggyback loans in 2005 and 2006 is that for many borrowers, the overall cost of the two loans became relatively cheap as investor appetite for junior liens increased, making them widely available and pushing down their interest rates (see, e.g. LaCour-Little, et al 2011). 24 Figure 1 shows the share of loans with PMI and with a piggyback from 2000 to 2009.…”

Supply restrictions, subprime lending and regional US house prices

“…We then exclude these observations from our selection sample. In the second step, we follow Calhoun (2006) and LaCour-Little et al (2011) and perform a similar sorting and matching procedure, only now we leave out the bank identifer. These observations are then removed from the sample, and we have three data sets: One with multi-loans as identified at step one, one with multi-loans as identified at step two and one containing only single loans.…”

The Role of Home Equity Lending in the Recent Mortgage Crisis

“…In a working paper, LaCour‐Little, Rosenblatt and Yao () report that roughly 80% of Southern California borrowers facing foreclosure during 2006–2008 had at least one junior lien outstanding, suggesting that junior lien borrowing may increase foreclosure risk. LaCour‐Little, Calhoun and Yu () focus on one particular type of junior lien borrowing, simultaneous close piggyback loans, and find that piggyback originations, particularly subprime piggybacks, are associated with higher default and foreclosure rates in subsequent years. Goodman et al .…”