A Review of Explanations for the Housing Boom

  • Daniel Aronoff


Subprime lending played a key role in the housing boom. Subprime mortgage lending entailed increased risk compared to traditional “prime” mortgage lending, but also offered the prospect to the lender of earning an elevated return. The typical subprime borrower had a FICO1 score (a measure of borrower creditworthiness) below 660, had delinquent debt repayment in the previous 12–24 months, or had filed for bankruptcy in the past few years. By comparison, traditional prime mortgage borrowers had FICO scores above 700 and no derogatory credit histories.2


Mortgage Loan Mortgage Lending Mortgage Default Home Price Collateralized Debt Obligation 
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  1. 4.
    See figure 2.1; and Dwight Jaffee and John M. Quigley, “The Future of the Government Sponsored Enterprises: The Role for Government in the US Mortgage Market,” Chapter 8 in Housing and the Financial Crisis, ed. Edward L. Glaeser and Todd Sinai, National Bureau of Economic Research, 2013, Table 8.1, p. 367.Google Scholar
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    See Eric Arentsen, David C. Mauer, Brian Rosenlund, Harold H. Zhang, and Feng Zhao, “Subprime Mortgage Defaults and Credit Default Swaps,” Journal of Finance, Vol. 70, Number 2 (April 2015): 689–731, Scholar
  3. 16.
    Christopher L. Foote, Kristopher S. Gerardi, and Paul S. Willen, “Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis,” Federal Reserve Bank of Boston, Public Policy Discussion Papers No. 12-2, 2012, p. 16.CrossRefGoogle Scholar
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    Sumit Agarwal, Effi Benmelech, Nittai Bergman, and Amit Seru, “Did the Community Reinvestment Act (CRA) Lead to Risky Lending?” National Bureau of Economic Research NBER Working Paper No. 18609, 2012.CrossRefGoogle Scholar
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    Atif Mian and Amir Sufi, House of Debt (University of Chicago Press, 2014).Google Scholar
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    Ibid., p. 83.Google Scholar
  12. 36.
    Christopher Foote et al., “Subprime Facts: What (We Think) We Know about the Subprime Crisis and What We Don’t,” Federal Reserve Bank of Boston, Public Policy Discussion Papers No. 08-2, 2008, Table 3, p. 14.Google Scholar
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    Ibid., p. 79.Google Scholar

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© Daniel Aronoff 2016

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  • Daniel Aronoff

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