Investigators at University of Pennsylvania Describe Findings in Finance (Moral Hazard During the Housing Boom: Evidence From Private Mortgage Insurance): Finance

2022 FEB 17 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Current study results on Finance have been published. According to news reporting originating in Philadelphia, Pennsylvania, by NewsRx journalists, research stated, “We provide novel evidence of misaligned incentives fueling a portion of the 2000s mortgage boom.”

Financial support for this research came from Research Sponsors Program of the Zell/Lurie Real Estate Center.

The news reporters obtained a quote from the research from the University of Pennsylvania, “We document that private mortgage insurance (PMI) companies expanded insurance issuance on high-risk mortgages purchased by Fannie Mae and Freddie Mac at the tail end of the housing boom, without changing pricing and despite knowledge of heightened housing risk. The expansion of PMI facilitated an unprecedented increase in Fannie and Freddie’s risky purchases, extending the mortgage boom into 2007 and precipitating their collapse.”

According to the news reporters, the research concluded: “We argue that this unraveling reflects a general moral hazard problem in insurance, coupled with misaligned incentives in the government-backed mortgage market.”

This research has been peer-reviewed.

For more information on this research see: Moral Hazard During the Housing Boom: Evidence From Private Mortgage Insurance. Review of Financial Studies, 2022;35(2):771-813. Review of Financial Studies can be contacted at: Oxford Univ Press Inc, Journals Dept, 2001 Evans Rd, Cary, NC 27513, USA. (Oxford University Press - http://www.oup.com/; Review of Financial Studies - rfs.oxfordjournals.org)

Our news correspondents report that additional information may be obtained by contacting Benjamin J. Keys, University of Pennsylvania, Wharton School, Philadelphia, PA 19104, United States.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1093/rfs/hhab060. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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