Subprime Mortgage Defaults: A Confluence Of Upward Aspirations And Readily Available Capital
Author
Martin, James; Schrum, Janice
Publisher
Washburn University, School of BusinessDate
July 2008Metadata
Show full item recordAbstract
Recent dramatic increases in the level of home mortgage defaults by subprime borrowers have focused intense regulator and media scrutiny upon the potential causes of the increases. In an analysis of causation, this paper examines the increased availability and usage of non-traditional mortgages such as adjustable rate mortgages and interest only loans by borrowers with weak credit. This paper also reviews the impact of decreasing real estate values on mortgage defaults. However, most significantly, this paper adds to the body of knowledge on subprime mortgage lending by evaluating the interrelationship of real estate values, borrower income, and income disparity in driving the increase in mortgage defaults. Our findings strongly support a conclusion that an American desire to "keep up with the Joneses" is a contributing cause to the increase in subprime mortgage defaults. Conspicuous consumption and competitive consumption are also linked to the concept of "keeping up with the Joneses".