Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures provides the first rigorous assessment of the homeownership experiences of subprime borrowers. It considers homeowners who used subprime mortgages to buy their homes, and estimates how often these borrowers end up in foreclosure. In order to evaluate these issues, homeownership experiences in Massachusetts over the 1989–2007 period are analyzed, using a competing risks/ proportional hazard framework. Two findings are presented: first, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as experiences that begin with prime purchase mortgages; second, house price appreciation plays a dominant role in generating foreclosures. In fact, most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 were due to the decline in house prices that began in the summer of 2005.
Source: Federal Reserve of Boston
