SSRN-Understanding the Subprime Mortgage Crisis by Yuliya Demyanyk, Otto Van Hemert(February 29, 2008)

SSRN-Understanding the Subprime Mortgage :

Yuliya Demyanyk
Federal Reserve Bank of St. Louis - Banking Supervision and Regulation

Otto Van Hemert
New York University - Department of Finance


February 29, 2008



Abstract:
Using loan-level data, we analyze the quality of subprime mortgage loans by adjusting their performance for differences in borrower characteristics, loan characteristics, and house price appreciation since origination. We find that the quality of loans deteriorated for six consecutive years before the crisis and that securitizers were, to some extent, aware of it. We provide evidence that the rise and fall of the subprime mortgage market follows a classic lending boom-bust scenario, in which unsustainable growth leads to the collapse of the market. Problems could have been detected long before the crisis, but they were masked by high house price appreciation between 2003 and 2005.
Keywords: mortgage, subprime, delinquency, foreclosure"