Credit Booms and Lending Standards: Evidence from the Subprime Mortgage Market
Year: 2012
Type: article
Abstract: This paper links the U.S. subprime mortgage crisis to demand‐side factors that contributed to the rapid expansion of the U.S. mortgage market. We show that denial rates were relatively lower in areas that experienced faster credit demand growth and that lenders in these high‐growth areas attached less weight to applicants’ loan‐to‐income ratios. The results are robust to controlling for supply‐side factors, including house price appreciation, mortgage securitization, and other economic fundamentals, and to several robustness tests controlling for endogeneity. The results are consistent with the notion that a relaxation of lending standards, triggered by an increased demand for loans, contributed to the boom and the ensuing crisis, together with other supply‐side explanations. These findings shed new light on the relationship between credit booms and financial instability.
Authors: GIOVANNI DELL’ARICCIA, DENIZ IGAN, LUC LAEVEN
Institutions: International Monetary Fund, Tilburg University
Language: English
Topic: Housing Market and Economics
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3122873245