DiLellio, James; Forsyth, Joetta
April 2014
International Journal of Business, Accounting, & Finance;Spring2014, Vol. 8 Issue 1, p34
Academic Journal
This study examines income falsification on mortgage applications during the housing bubble using a measure of income falsification called "clusters." The cluster measure is based on the tendency of people to pick similar numbers, including rounded numbers. Reported income on mortgage applications produced income clusters that rise and fall with house prices throughout the housing bubble. This study compares income clusters for loans concerning government- sponsored enterprises (GSEs), made by Fannie Mae and Freddie Mac that are just below the conforming loan limit, with jumbo loans just above the limit. By isolating a sample around the jumbo loan cutoff point, the results of this study find that the GSEs tend to have fewer clusters, suggesting that they suppressed income falsification. However, for a group of borrowers with very high reported income compared to area income, the GSEs have the highest clusters in the entire sample. This indicates that the greater paperwork requirements of borrowers by the GSEs may have reduced income falsification on most loans, while a very aggressive group of liars significantly inflated income, and possibly falsified documents, to receive subsidized GSE loans.


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