Article Abstract:
Previous research has indicated that, despite the existence of secondary mortgage markets and the deregulation of deposit rates, credit rationing persists. Credit rationing is a result of a combination of the default risk of borrowers and either asymmetric information between lenders and borrowers or default costs of lenders. Credit rationing was analyzed using aggregate time-series data on the origination of both conventional and Federal Housing Administration (FHA) mortgages. Research results indicated that conventional mortgages were rationed by a combination of loan rates and nonprice terms by originators, and that rationing continued in the postintermediation era. In the conventional market, FHA loans accommodated at least some homes with constrained credit and provided a partial insulation of owner-occupied housing demand from variations in nonprice credit terms.
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Article Abstract:
The effects of the race of the borrower and default risk in mortgage lending were examined. The research was based on a probit model of obtaining Federal Housing Administration (FHA) or conventional mortgages. FHA mortgages are fully insured and have easier down payment restrictions, but they are usually more expensive, which means that borrowers will be credit constrained in the conventional market. Research results indicated that the type of loan obtained by borrowers was influenced by the variables that proxy lenders' worries about cost and default risk. Minority borrowers had a much lower probability of obtaining conventional mortgages than white borrowers, which implies that race effects in lending may occur for reasons other than borrower default risk.
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Article Abstract:
The effect of default risk-induced credit constraints on the demand for owner-occupied housing was studied. The data consisted of demographic and housing statistics for 9,883 families in 15 standard metropolitan statistical areas. The results indicated that nonprice credit terms influenced the demand for owner-occupied housing. Households with credit constraints demonstrated different elasticities of demand for housing than households with fewer constraints. Elasticities of demand varied considerably across Veterans' Administration and conventional mortgage holders, and Federal Housing Administration financing mitigated the impact of mortgage constraints.
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