We present a simple theoretical model of adverse selection when lenders allow reduced documentation. The model shows how reduced documentation attracts both riskier borrowers and larger size loans. We then empirically test implications of the model using stated income loans originated during the...

Mortgage contract design has been identified as a contributory factor in the recent market crisis. Here we examine alternative mortgage products (including interest-only and other deferred amortization structures) and develop a game theoretic model of contract choice given uncertain future...

We examine stated income loans originated by Bear Stearns affiliates during the recent housing market run-up and market collapse. After showing the extent to which these loans have higher default rates than do fully documented loans after controlling for other risk factors, we develop a measure...