Non-prime Mortgage Market Structures: A Credit Scoring Perspective. (2018)
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 DateSeptember, 2018
Citation InformationJaime Luque and Timothy Riddiough. "Non-prime Mortgage Market Structures: A Credit Scoring Perspective" . (2018)
Available at: http://works.bepress.com/luque/18/
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