James Conklin, W. Scott Frame, Kristopher Gerardi, and Haoyang Liu
Working Paper 2018-10
August 2018

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An expansion in mortgage credit to subprime borrowers is widely believed to have been a principal driver of the 2002–06 U.S. house price boom. Contrary to this belief, we show that the house price and subprime booms occurred in different places. Counties with the largest home price appreciation between 2002 and 2006 had the largest declines in the share of purchase mortgages to subprime borrowers. We also document that the expansion in speculative mortgage products and underwriting fraud was not concentrated among subprime borrowers.

JEL classification: D14, D18, D53, G21, G38

Key words: mortgages, subprime, house prices, credit scores, housing boom


The authors thank Manuel Adelino, Brent Ambrose, Matteo Crosignani, Richard Crump, Fernando Duarte, Andreas Fuster, Andrew Haughwout, David Humphrey, Michael Lee, David Lucca, Christopher Palmer, Amiyatosh Purnanandam, James Vickery, Nancy Wallace, Paul Willen, and seminar participants at the Federal Reserve Bank of New York and the 2018 Western Finance Association Conference for their valuable comments. They especially thank Daniel Sexton for outstanding research assistance. Haoyang Liu also thanks the generous support from the Fisher Center for Real Estate and Urban Economics at the University of California, Berkeley while part of the paper was written. James Conklin gratefully acknowledges research support from the University of Georgia's Terry-Sanford award. The views expressed here are those of the authors and not necessarily those of the Federal Reserve Bank of New York, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Any remaining errors are the authors' responsibility. First version: October 2017.
Please address questions regarding content to James Conklin, Department of Insurance, Legal Studies, and Real Estate, Terry College of Business, University of Georgia, 423 Moore-Rooker Hall, Athens, GA 30602, 706-542-4223, jnc152@uga.edu; W. Scott Frame, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8783, scott.frame@atl.frb.org; Kristopher Gerardi, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street NE, Atlanta, GA 30309-4470, 404-498-8561, kristopher.gerardi@atl.frb.org; or Haoyang Liu, Capital Markets Function, Federal Reserve Bank of New York, 33 Liberty Street, New York, NY 10045, 212-720-2976, haoyang.liu@ny.frb.org.
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