January 13, 2011
Marquette real estate professor honored for best paper of 2010
Pennington-Cross’ study on subprime mortgages lauded by leading journal
MILWAUKEE – A paper authored by Anthony Pennington-Cross
, associate professor of finance in the College of Business Administration
, was recently named the 2010 Edwin S. Mills Best Paper in Real Estate Economics
The award honors “The Termination of Subprime Hybrid and Fixed Rate Mortgages,” which appeared as the lead piece in the fall 2010 edition of the journal, and was co-authored by Giang Ho of UCLA. The longest running real estate journal, Real Estate Economics
is considered the leading journal in its discipline.
Using data from before the beginning of the recent financial crisis, Pennington-Cross’ study showed there were significant vulnerabilities associated with emerging innovative mortgage products, commonly referred to as subprime mortgages.
These 30-year mortgages, known as “2/28” loans, often included a low introductory interest rate, which would increase after the first two years, often 2 to 3 percentage points. Pennington-Cross found that the rate hike itself would increase the national loan default rate by 3 times. Further, if these higher interest rates were mixed with flat or declining house prices, the default rate would increase sixfold.
“Simply put, even before the crisis, the data showed these loans were risky and bound to fail if the economy and/or home prices became stagnant,” Pennington-Cross said. “Unfortunately, this is exactly what happened.”
Prior to joining Marquette, Pennington-Cross was a senior economist in the research division at the Federal Reserve Bank of St. Louis where he lead research on subprime lending in the mortgage markets and related predatory lending issues. Previously, he was a senior economist at the Office of Federal Housing Enterprise Oversight in the Office of Policy and Research and the director of research at the Research Institute for Housing America (RIHA), a research organization devoted to extending home ownership to all Americans.