The 2008 mortgage crisis in clusters

Eugen G Tarnow  May 16 2016 09:20:13 AM

By Eugen Tarnow, Ph.D.
Avalon Business Systems, Inc.
http://AvalonAnalytics.com

I noted in a previous posting Fannie Mae mortgages & credit scores that it appeared that the credit score distribution for the 2007 Fannie Mae loans had two peaks.  

One can, in fact, see clustering in the credit scores.  Interestingly, there are also two clusters in 2005, 2003 and even 2001!  

What do we know about those clusters?

The most important definer of the clusters is the average credit score of the borrower:



Notice how the clusters are far apart before the mortgage crisis.  The largest difference occurs in 2007 in which the difference is 102 points.  
Yet the loan amounts to these two clusters are almost the same:



The smallest difference in loan amounts occurs in 2003 in which it is 1.8%.  How can any borrower decide to loan the same amount to two populations that differ by 100 points in the credit score?

Before the mortgage crisis the number of borrowers in the high score cluster goes down to 56% and after the mortgage crisis it goes up to 72%:



Beyond the credit score, the clusters also differ by the proportion single borrowers:



In the low rated cluster it starts out at 5% higher in 2001 but it keeps increasing even through the mortgage crisis.  In 2013 the difference was 13%:



The interest rates are barely different for the two groups:



From the data available to me I am not able to discern the composition of these clusters.  

But it is curious that they exist at all.
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