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The Role of Home Equity Lending in the Recent Mortgage Crisis
Author(s) -
LaCourLittle Michael,
Yu Wei,
Sun Libo
Publication year - 2013
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.12029
Subject(s) - equity (law) , home equity , economics , monetary economics , house price , depreciation (economics) , financial crisis , recession , financial system , business , finance , market economy , macroeconomics , capital formation , financial capital , political science , law , human capital
Home equity lending grew rapidly from 2000 to 2008 with balances more than tripling. In this article, we examine the role this phenomenon may have played in increasing aggregate default risk during the mortgage crisis. We also document a relationship between growth in home equity lending and high house price depreciation and first mortgage default during the downturn of 2006–2009. Line of credit growth is shown to be associated with large increases in nonowner‐occupied property purchases, suggesting that home equity lines of credit were tapped to fund such investments, exacerbating default rates during the market downturn.