Mortgage Risk Premiums during the Housing Bubble

  • Adam J. Levitin
  • Desen LinEmail author
  • Susan M. Wachter


How did pricing for mortgage credit risk change during the years prior to the 2008 financial crisis? Using a database from a major American bank that served as trustee for private-label mortgage-backed securitized (PLS) loans, this paper identifies a decline in credit spreads on mortgages conditioned on loan and borrower characteristics. We show that observable risk factors, FICO score and loan-to-value ratio, had less of an impact on mortgage pricing over time. As the volume of PLS mortgages expanded and lending terms eased, risk premiums failed to price the increase in risk.


Housing bubble Risk premium Securitization Private-label 


G01 G12 G20 G21 



We thank Ben Keys, Michael LaCour-Little, Laurie Goodman, and Jing Yang as well as seminar participants at the 2018 AREUEA National Meeting for their helpful comments and discussion. Susan Wachter acknowledges financial support from the Zell Lurie Real Estate Center at the Wharton School of the University of Pennsylvania.


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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Georgetown University Law CenterWashingtonUSA
  2. 2.Department of EconomicsUniversity of PennsylvaniaPhiladelphiaUSA
  3. 3.The Wharton SchoolUniversity of PennsylvaniaPhiladelphiaUSA

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