Fed paper on subprime mortgages

This Federal Reserve working paper models the historical default and prepayment behaviour for subprime mortgages using data on securitised mortgages originated from 2000 to 2007.

The authors find that more recently originated subprime loans are more likely to default, well ahead of their first mortgage rate resets, and less likely to prepay or refinance.

This rise in mortgage defaults stems largely from unprecedented declines in house prices, along with slack underwriting and tight credit market

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