Panel: Mortgage and Consumer Credit: Looking Back and Looking Forward
(Housing & Community Development)

Saturday, November 10, 2012: 10:15 AM-11:45 AM
International B (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

Organizers:  Rajeev Darolia, University of Missouri
Moderators:  Carolina Reid, University of California- Berkeley and Pamela Blumenthal, Housing and Urban Development (HUD)
Chairs:  Robert Van Order, George Washington University

This session includes four papers that discuss how past experiences in mortgage and consumer credit can inform future policy decisions. Presenters include researchers from industry and academia. All papers include both theoretical and empirical components. The first paper, “How Endogenous Credit Scores, Fraud, and Clueless Bankers Caused the Collapse of Mortgage Markets,” examines potential fallacies in underwriting models used by bankers and how strategic decisions by borrowers may have led to lenders underestimating default risk. This paper provides empirical evidence that credit score is manipulated strategically by applicants by showing that the change in credit score, after the mortgage is endorsed, is directly associated with the fall in APR realized when the credit score is raised. Thus differences in incentive to raise credit score artificially explain the subsequent decline in credit score after endorsement. The second paper, “Student Loan Discrimination: Measurement and Evidence,” provides one of the first analyses of discrimination in student loan markets. It discusses where students may face discrimination in loan markets, reviews evidence of discrimination in extant literature, and uses a variety of data sources to provide directions for future research and policy. The third paper, “The Changing Structure of US Mortgage Markets,” reviews the fall and rise of government-insured Federal Housing Administration (“FHA”) mortgages, discussing how markets have changed and what challenges remain for providing access to sustainable homeownership. The paper examines the causes of changes over time for FHA lending, discusses implications for the communities that have historically been served by FHA lending, and highlights challenges for policymakers with changing mortgage markets. The fourth paper, "Affordable Housing Goals and Differential Access to Mortgage Credit: Federal Housing Policy and Persistent Patterns of Residential Segregation in the Philadelphia Region," adopts a spatial approach to examine the distribution of mortgage credit across the Philadelphia region to broadly provide insight into the way historical patterns of differential access to mortgage credit have evolved in the 21st century. By directly examining the spatial relationship between access to credit and neighborhood quality in the Philadelphia region, this paper will contribute to a better understanding of how Federal housing policies does, or does not, influence differential access to mortgage credit across a persistently segregated metropolitan region.

How Endogenous Credit Scores, Fraud, and Clueless Bankers Caused the Collapse of Mortgage Markets
Anthony Yezer, George Washington University and Brent Smith, Virginia Commonwealth University

The Changing Structure of US Mortgage Markets
Marsha Courchane, Charles River Associates, Peter Zorn, Freddie Mac and Rajeev Darolia, University of Missouri

Student Loan Discrimination: Measurement and Evidence
Rajeev Darolia, University of Missouri

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