Panel: Mortgage Underwriting and Access to Credit
(Housing and Community Development)

Saturday, November 8, 2014: 1:45 PM-3:15 PM
Sandia (Convention Center)

*Names in bold indicate Presenter

Panel Organizers:  Carolina Reid, University of California, Berkeley
Panel Chairs:  Christopher Herbert, Harvard University
Discussants:  J. Michael Collins, University of Wisconsin

Measuring Mortgage Credit Accessibility
Wei Li, Laurie Goodman, Ellen Seidman, Jim Parrott, Jun Zhu and Bing Bai, The Urban Institute

The Refinance Gap: Understanding Mortgage Refinancing Behavior Among Lower-Income and Minority Homeowners
Carolina Reid, University of California, Berkeley and Debbie Bocian, Center for Responsible Lending

Five years after mortgage giants Fannie Mae and Freddie Mac (the GSEs) were placed under the control of the federal government, policy debates about the future of housing policy and the government’s role in the mortgage market continue. The outcomes of these policy debates will have fundamental implications for the stability and size of the mortgage market, as well as the strength of the US economy. In addition, policy choices related to the GSEs, the Federal Housing Administration (FHA) and mortgage underwriting standards under Dodd-Frank will shape access to credit going forward, especially for minority and low- and moderate-income households and communities. While the issue of mortgage underwriting can at times seem technical and bureaucratic, it has profound consequences for who gets to become a homeowner and the benefits that homeownership will confer down the road. In this panel, we examine questions related to mortgage underwriting with an eye toward understanding how different aspects of the housing financial system and the policies that govern them shape access to credit for US households. The first two papers, Measuring Mortgage Credit Accessibility and Mortgage Underwriting Regime Changes – An Analysis of Loans Rejected by the Housing GSEs, present provocative new data and methods for understanding credit access. These papers both reveal important differences in access across socio-economic and demographic groups and show the extent to which government policies play a countercyclical role in providing access to credit, particularly with respect to the most recent financial crisis and the resulting credit constrained housing market. The third paper focuses on narrower, but equally critical, segment of the mortgage market: FHA lending and the experience of low-wealth, first-time homebuyers. It examines whether borrowers who take out an FHA loan are more likely to pay full asking price for a house, in effect overpaying compared to potentially more sophisticated or asset-rich borrowers. This not only has implications for long-term asset building, but also for house price risk and the long-term sustainability of FHA mortgages. Given the important role that FHA is likely to play in serving lower-wealth borrowers going forward, understanding the potential adverse or protective effects of FHA insurance is important for future housing policy. The final paper similarly focuses on the implications of mortgage underwriting practices on a borrower’s ability to build equity, but shifts from the purchase market to focus on underwriting in the refinance market. It seeks to explain why low-income and minority homeowners are significantly less likely to refinance their homes, despite the current low-interest rate environment. Disparities in refinance rates have significant implications for both household wealth and financial well-being over time, and will shape the degree to which homeownership leads to positive spatial, social and intergenerational externalities. Together, the papers in the panel improve our understanding of the underwriting factors that access to credit, and will help to inform the development of more equitable housing finance policies and programs going forward.
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