Year Published
2006
Abstract
While the subprime mortgage loan product clearly expands access to credit, concerns
have been raised about its costs, particularly to lower-income and minority
populations. This paper examines whether GSE loan purchase activities might serve as
an effective vehicle for mitigating these costs. The empirical evidence shows that
measured in terms of market shares, increases in GSE purchase activity are associated
with declines in subprime mortgage activity. Moreover, the effects tend to be stronger in
neighborhoods with significant minority populations, precisely the neighborhoods where
subprime lending has been concentrated and growing the fastest. A rough calculation
shows that a ten percent increase in GSE market share could lead to 20,000 borrowers
using prime instead of subprime loans, at a cost savings of about $100 million.
have been raised about its costs, particularly to lower-income and minority
populations. This paper examines whether GSE loan purchase activities might serve as
an effective vehicle for mitigating these costs. The empirical evidence shows that
measured in terms of market shares, increases in GSE purchase activity are associated
with declines in subprime mortgage activity. Moreover, the effects tend to be stronger in
neighborhoods with significant minority populations, precisely the neighborhoods where
subprime lending has been concentrated and growing the fastest. A rough calculation
shows that a ten percent increase in GSE market share could lead to 20,000 borrowers
using prime instead of subprime loans, at a cost savings of about $100 million.
Research Category