This paper examines the role of home equity-based borrowing in the U.S. household leverage crisis. Using individual-level data on homeowner debt and defaults from 1997 to 2008, the authors show that borrowing against home equity was a significant factor in the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. They estimate that the average homeowner extracts 25 to 30 cents for every dollar increase in home equity. This borrowing is not used to purchase new real estate or pay down high credit card balances, suggesting that borrowed funds may be used for consumption or home improvement. Home equity-based borrowing is stronger for younger households, households with low credit scores, and those with high initial credit card utilization rates. Homeowners in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 but very high default rates from 2006 to 2008. The authors estimate that home equity-based borrowing accounts for at least 34% of new defaults from 2006 to 2008. They also find that home equity-based borrowing is equal to 2.8% of GDP every year from 2002 to 2006. The study uses two different instruments for house price growth, one based on across-MSA variation and another based on within-MSA variation. The results suggest that home equity-based borrowing is a significant factor in the U.S. household leverage crisis. The study also finds that the real effects of the home equity-based borrowing channel depend on what households do with the borrowed money. The authors find little evidence that borrowing in response to increased house prices is used to purchase new homes or investment properties. They also find no evidence that home equity-based borrowing is used to pay down credit card balances, even for households in the highest quartile of the 1997 credit card utilization distribution. These findings suggest that the marginal return to the use of borrowed funds is higher to households than the high interest rate on credit card debt. The study also finds that the home equity-based borrowing channel is stronger for younger homeowners and those with low credit scores. The results are consistent with a model of credit constraints under the assumption that low credit scores and high credit card utilization rates serve as indicators for borrowing difficulty. However, these characteristics may also proxy for individuals with self-control problems. The study also finds that the increase in homeowner leverage due to the home equity-based borrowing channel plays an important role in the ensuing financial crisis. Using homeowner default rate data, the authors show that borrowing against rising home equity is accompanied by a relative decline in default rates from 2002 to 2006, especially for low credit score and high credit card utilization homeowners. However, the relative declineThis paper examines the role of home equity-based borrowing in the U.S. household leverage crisis. Using individual-level data on homeowner debt and defaults from 1997 to 2008, the authors show that borrowing against home equity was a significant factor in the sharp rise in U.S. household leverage from 2002 to 2006 and the increase in defaults from 2006 to 2008. They estimate that the average homeowner extracts 25 to 30 cents for every dollar increase in home equity. This borrowing is not used to purchase new real estate or pay down high credit card balances, suggesting that borrowed funds may be used for consumption or home improvement. Home equity-based borrowing is stronger for younger households, households with low credit scores, and those with high initial credit card utilization rates. Homeowners in high house price appreciation areas experience a relative decline in default rates from 2002 to 2006 but very high default rates from 2006 to 2008. The authors estimate that home equity-based borrowing accounts for at least 34% of new defaults from 2006 to 2008. They also find that home equity-based borrowing is equal to 2.8% of GDP every year from 2002 to 2006. The study uses two different instruments for house price growth, one based on across-MSA variation and another based on within-MSA variation. The results suggest that home equity-based borrowing is a significant factor in the U.S. household leverage crisis. The study also finds that the real effects of the home equity-based borrowing channel depend on what households do with the borrowed money. The authors find little evidence that borrowing in response to increased house prices is used to purchase new homes or investment properties. They also find no evidence that home equity-based borrowing is used to pay down credit card balances, even for households in the highest quartile of the 1997 credit card utilization distribution. These findings suggest that the marginal return to the use of borrowed funds is higher to households than the high interest rate on credit card debt. The study also finds that the home equity-based borrowing channel is stronger for younger homeowners and those with low credit scores. The results are consistent with a model of credit constraints under the assumption that low credit scores and high credit card utilization rates serve as indicators for borrowing difficulty. However, these characteristics may also proxy for individuals with self-control problems. The study also finds that the increase in homeowner leverage due to the home equity-based borrowing channel plays an important role in the ensuing financial crisis. Using homeowner default rate data, the authors show that borrowing against rising home equity is accompanied by a relative decline in default rates from 2002 to 2006, especially for low credit score and high credit card utilization homeowners. However, the relative decline