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Credit rationing, income exaggeration, and adverse selection in the mortgage market

To purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12426/abstract Byline: BRENT W. AMBROSE, JAMES CONKLIN, JIRO YOSHIDA ABSTRACT We examine the role of borrower concerns about future credit availability in mitigating... Full description

Journal Title: The journal of finance : the journal of the American Finance Association 2016, Vol.71(6), pp.2637-2686
Main Author: Ambrose, Brent William
Format: Electronic Article Electronic Article
Language: English
Subjects:
Usa
ID: ISSN: 0022-1082
Link: http://gso.gbv.de/DB=2.1/PPNSET?PPN=1001419251
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recordid: gbv1001419251
title: Credit rationing, income exaggeration, and adverse selection in the mortgage market
format: Article
creator:
  • Ambrose, Brent William
subjects:
  • Kreditrationierung
  • Adverse Selektion
  • Subprime-Krise
  • Immobilienpreis
  • Kredittilgung
  • Usa
ispartof: The journal of finance : the journal of the American Finance Association, 2016, Vol.71(6), pp.2637-2686
description: To purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12426/abstract Byline: BRENT W. AMBROSE, JAMES CONKLIN, JIRO YOSHIDA ABSTRACT We examine the role of borrower concerns about future credit availability in mitigating the effects of adverse selection and income misrepresentation in the mortgage market. We show that the majority of additional risk associated with "low-doc" mortgages originated prior to the Great Recession was due to adverse selection on the part of borrowers who could verify income but chose not to. We provide novel evidence that these borrowers were more likely to inflate or exaggerate their income. Our analysis suggests that recent regulatory changes that have essentially eliminated the low-doc loan product would result in credit rationing against self-employed borrowers. Article Note: Brent W. Ambrose and Jiro Yoshida are with the Pennsylvania State University Smeal College of Business. James Conklin is with the University of Georgia Terry College of Business. We thank Itzhak Ben-David, Sumit Agarwal, Manuel Adelino, Christopher Palmer, Sam Kruger, Ken Singleton (Editor), the anonymous Associate Editor and referees, and seminar participants at the National University of Singapore, University of California-Berkeley, Research Institute of Capital Formation, Housing Research and Advancement Foundation of Japan, Board of Governors of the Federal Reserve System, University of Cambridge, Federal Reserve Bank of Atlanta Real Estate Finance Conference, and the 2015 ASSA meeting in Boston for their helpful comments and suggestions. We also thank the Penn State Institute for Real Estate Studies for providing access to the New Century Mortgage database. We gratefully acknowledge research assistance from Sergio Garate. The authors have no material financial interests related to this research, as identified in the journal's Disclosure Policy; furthermore, no party had the right to review this paper prior to circulation. CAPTION(S): Appendix S1: Internet Appendix.
language: eng
source:
identifier: ISSN: 0022-1082
fulltext: fulltext
issn:
  • 00221082
  • 0022-1082
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descriptionTo purchase or authenticate to the full-text of this article, please visit this link: http://onlinelibrary.wiley.com/doi/10.1111/jofi.12426/abstract Byline: BRENT W. AMBROSE, JAMES CONKLIN, JIRO YOSHIDA ABSTRACT We examine the role of borrower concerns about future credit availability in mitigating the effects of adverse selection and income misrepresentation in the mortgage market. We show that the majority of additional risk associated with "low-doc" mortgages originated prior to the Great Recession was due to adverse selection on the part of borrowers who could verify income but chose not to. We provide novel evidence that these borrowers were more likely to inflate or exaggerate their income. Our analysis suggests that recent regulatory changes that have essentially eliminated the low-doc loan product would result in credit rationing against self-employed borrowers. Article Note: Brent W. Ambrose and Jiro Yoshida are with the Pennsylvania State University Smeal College of Business. James Conklin is with the University of Georgia Terry College of Business. We thank Itzhak Ben-David, Sumit Agarwal, Manuel Adelino, Christopher Palmer, Sam Kruger, Ken Singleton (Editor), the anonymous Associate Editor and referees, and seminar participants at the National University of Singapore, University of California-Berkeley, Research Institute of Capital Formation, Housing Research and Advancement Foundation of Japan, Board of Governors of the Federal Reserve System, University of Cambridge, Federal Reserve Bank of Atlanta Real Estate Finance Conference, and the 2015 ASSA meeting in Boston for their helpful comments and suggestions. We also thank the Penn State Institute for Real Estate Studies for providing access to the New Century Mortgage database. We gratefully acknowledge research assistance from Sergio Garate. The authors have no material financial interests related to this research, as identified in the journal's Disclosure Policy; furthermore, no party had the right to review this paper prior to circulation. CAPTION(S): Appendix S1: Internet Appendix.
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