Looking Behind Mortgage Delinquencies

We examine the delinquency rate for mortgages originated before and after the 2008 financial crisis, using a novel and large representative panel obtained by merging data from tax records and credit registers. First, we estimate the selection into the mortgage market using an exogenous index of local credit supply as exclusion restriction. Second, controlling for selection we estimate the impact of income shocks on the probability of recording a delinquency. We find that since 2008 the selection process operated by banks has led to the halving of the delinquency rate. Conditional on mortgage origination, a job loss nearly doubles the delinquency risk. Estimates uncorrected for selection are subject to severe downward biased