TY - JOUR AU - Lee, Donghoon AU - Mayer, Christopher J AU - Tracy, Joseph TI - A New Look at Second Liens JF - National Bureau of Economic Research Working Paper Series VL - No. 18269 PY - 2012 Y2 - August 2012 DO - 10.3386/w18269 UR - http://www.nber.org/papers/w18269 L1 - http://www.nber.org/papers/w18269.pdf N1 - Author contact info: Donghoon Lee Federal Reserve Bank of New York 33 Liberty Street New York, NY 10045 Tel: 2127208699 E-Mail: donghoon.lee@ny.frb.org Christopher J. Mayer Columbia Business School 3022 Broadway, Uris Hall #805 New York, NY 10027 Tel: 212/854-4221 Fax: 212-932-0545 E-Mail: cm310@gsb.columbia.edu Joseph Tracy Executive Vice President Federal Reserve Bank of Dallas 2200 N Pearl St Dallas Texas 75201 Tel: 214/992-5996 E-Mail: joestracy@gmail.com M1 - published as Donghoon Lee, Christopher Mayer, Joseph Tracy. "A New Look at Second Liens," in Edward L. Glaeser and Todd Sinai, editors, "Housing and the Financial Crisis" University of Chicago Press (2013) M2 - featured in NBER digest on 2012-10-25 M3 - presented at "Housing and the Financial Crisis", November 17-18, 2011 AB - We use data from credit report and deeds records to better understand the extent to which second liens contributed to the housing crisis by allowing buyers to purchase homes with small down payments. At the top of the housing market second liens were quite prevalent, with as many as 45 percent of home purchases in coastal markets and bubble locations involving a piggyback second lien. Owner-occupants were more likely to use piggyback second liens than investors. Second liens in the form of home equity lines of credit (HELOCs) were originated to relatively high quality borrowers and originations were declining near the peak of the housing boom. By contrast, characteristics of closed end second liens (CES) were worse on all these dimensions. Default rates of second liens are generally similar to that of the first lien on the same home, although HELOCs perform better than CES. About 20 to 30 percent of borrowers will continue to pay their second lien for more than a year while remaining seriously delinquent on their first mortgage. By comparison, about 40 percent of credit card borrowers and 70 percent of auto loan borrowers will continue making payments a year after defaulting on their first mortgage. Finally, we show that delinquency rates on second liens, especially HELOCs, have not declined as quickly as for most other types of credit, raising a potential concern for lenders with large portfolios of second liens on their balance sheet. ER -