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The paper shows that places that had high mortgage rejection rates in the middle 1990s had higher than average price increase in the first half of this decade. The reason: the development of subprime enabled those who were preciously shut out of the housing market to enter the housing market. An important inference: looser credit standards got capitalized into house prices. This is an important lesson for the development of mortgage finance around the world: liberalizing credit not only increases the ability of people to buy houses, it makes houses more expensive.
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