Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply

Nichols, Joseph; Pennington‐Cross, Anthony; Yezer, Anthony M.

doi:10.1007/s11146-004-4879-8

Cited by 56 publications

(23 citation statements)

References 6 publications

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“…In our analysis, we provide alternative interpretations for identifying the sources of these disparities, including various notions of discrimination contemplated in U.S. mortgage laws, as well as 21 See Nichols et al (2005) for a discussion of segmentation of the subprime and prime mortgage markets.…”

Section: Discussionmentioning

confidence: 99%

Differences in subprime loan pricing across races and neighborhoods

Ghent

Hernández-Murillo

Owyang

2014

Regional Science and Urban Economics

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a b s t r a c t JEL classification: G21 J15 R23 C11We investigate whether race and ethnicity influenced subprime loan pricing during 2005, the peak of the subprime mortgage expansion. We combine loan-level data on the performance of non-prime securitized mortgages with individual-and neighborhood-level data on racial and ethnic characteristics for metropolitan areas in California and Florida. Using a model of rate determination that accounts for predicted loan performance, we evaluate the differences in subprime mortgage rates in terms of racial and ethnic groups and neighborhood characteristics. We find evidence of adverse pricing for Blacks and Hispanics. The evidence of adverse pricing is strongest for purchase mortgages and mortgages originated by non-depository institutions.

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Section: Discussionmentioning

confidence: 99%

Differences in subprime loan pricing across races and neighborhoods

Ghent

Hernández-Murillo

Owyang

2014

Regional Science and Urban Economics

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“…If having an application rejected is costly, then we should expect riskier borrowers to opt for markets with less underwriting, and this can be a device for separating the riskiest from the safest borrowers (see Nichols et al (2002) and Staten et al (1990)) because application strategy will be a signal of creditworthiness made credible by rejection cost (along the lines in Spence (1973)). Ben-Shahar and Feldman (2003) present a model similar to ours in which there are two dimensions to selection and signaling-screening exists.…”

Section: Market Structure and Separating Equilibriummentioning

confidence: 99%

On the Economics of Subprime Lending

Cutts

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2005

J Real Estate Finan Econ

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US mortgage markets have evolved radically in recent years. An important part of the change has been the rise of the “subprime” market, characterized by loans with high default rates, dominance by specialized subprime lenders rather than full-service lenders, and little coverage by the secondary mortgage market. In this paper, we examine these and other “stylized facts” with standard tools used by financial economists to describe market structure in other contexts. We use three models to examine market structure: an option-based approach to mortgage pricing in which we argue that subprime options are different from prime options, causing different contracts and prices; and two models based on asymmetric information–one with asymmetry between borrowers and lenders, and one with the asymmetry between lenders and the secondary market. In both of the asymmetric-information models, investors set up incentives for borrowers or loan sellers to reveal information, primarily through costs of rejection. Copyright Springer Science + Business Media, Inc. 2004asymmetric information, licensing, option-pricing, secondary market, signaling, subprime mortgage market,

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“…Pennington-Cross. ami Yezer (2005) note that the share of subprime mortgage lending in the overall mortgage market grew from 0.74 percent in the earlv 1 OOOs to almost 9 percunt by the end of 1090s.…”

Section: Chomsisengphet and Pennington-crossmentioning

confidence: 99%

“…Immergluck and Wiles (1999) reported that more than half of subprime refinances 3 originated in predominately AfricanAmerican census tracts , whereas only one tenth of prim e refinances originated in predominately African-American census tracts. Nichols , Pennington-Cross, and Yezer (2005) found that credit-constrained borrowers with substantial wealth are most likely to finance the purchase of a home by using a subprime mortgage. The growth of subprime lending in the past decade has been quite dramatic.…”

Section: A Brief History Of Subprime Lendingmentioning

confidence: 99%