July 01, 2010

Moving Forward: Rebuilding the Housing Finance System After the Boom and Bust in Nonprime Mortgage Lending

Eric S. Belsky, Nela Richardson

MF10-10: The boom and bust in nonprime and nontraditional mortgage lending in the United

States is without precedent. The factors that fueled the boom and the way it unfolded sowed the seeds for what, in hindsight, appears to be an inevitable bust. The amount of risk in the system ballooned as a result of changes in lending practices. At the same time that credit was opened up to borrowers who had been previously denied loans because of past problems repaying their debts, many other underwriting standards were loosened. In addition, products with heavy payment reset risks proliferated in both the prime and nonprime markets. This layering of risk at or near the peak of an overheated housing market proved very deleterious to loan performance...

Category: Working Papers

Read More About: Housing Markets & Conditions