Estimation of the Causes of Subprime Mortgage Crisis

In light of the recent mortgage crisis, identifying the origins is crucial to prevent such a crisis from reoccurring in the future. This paper primarily links foreclosure to subprime loan expansion. To that end, more than one and half million subprime loans originated between 2006 and 2007 across top metropolitan statistical area in the United States are analyzed. First, this research shows evidence that subprime loans played a significant role in the deterioration of the real-estate market. Second, it demonstrates that other variables such as income and lending standards have contributed to the high default rate. Third, it confirms the fact that subprime loans originated for the purpose of refinancing have more impacts on foreclosure. The results obtained are all significant and consistent.