Subprime Lenders and Mortgage Market Completion

Peter Chinloy () and Nancy Macdonald

The Journal of Real Estate Finance and Economics, 2004, vol. 30, issue 2, pages 153-165

Abstract: Without a subprime market, some borrowers by virtue of poor credit history, unstable income, and other characteristics are unable to qualify for a mortgage. With a subprime market, there is a more complete credit supply schedule with the market pricing for poorer credit quality in the mortgage rate. By completing the capital market, subprime lenders reduce borrowing constraints. The result is a social welfare gain. Low-credit applicants otherwise denied funding are able to qualify by paying higher interest rates in exchange for offering more equity or lower loan-to-value ratios. This prediction is consistent with the subprime applicants financing or refinancing their mortgages at relatively low loan-to-value ratios. Copyright Springer Science + Business Media, Inc. 2004

Keywords: mortgages; market completion; subprime lending (search for similar items in EconPapers)
Date: 2004
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