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Unpublished Paper
Non-prime Mortgage Market Structures: A Credit Scoring Perspective
. (2018)
  • Jaime Luque, University of Wisconsin - Madison
  • Timothy Riddiough, University of Wisconsin - Madison
Our equilibrium theory rationalizes how credit scoring technologies (CSTs) can change the structure of the non-prime mortgage market, in turn changing the supply of non-prime mortgage loans, the home ownership rate and house prices. The fundamental trade-off in our model is the availability of soft information in credit risk assessment in the case of traditional banks versus access to secondary market liquidity in the case of originate-to-distribute (OTD) lenders. We show that increases in CST classification accuracy, which increases the credit quality of the OTD loan pool, results in increasingly lax screening as measured by reliance on the use of hard information to qualify loan applicants. A new characterization of house price boom and bust is provided, occurring when lower-risk consumers migrate en masse into and out of the OTD lending market.
Publication Date
September, 2018
Citation Information
Jaime Luque and Timothy Riddiough. "Non-prime Mortgage Market Structures: A Credit Scoring Perspective" . (2018)
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Creative Commons License
Creative Commons License
This work is licensed under a Creative Commons CC_BY-NC-ND International License.