Credit risk of low income mortgages

Hamilton Fout, Grace Li, Mark Palim and Ying Pan

Regional Science and Urban Economics, 2020, vol. 80, issue C

Abstract: Using Fannie Mae data on purchase mortgage acquisitions, we examine the relative credit performance of low and moderate income homebuyers. We first document the higher observed default rates of low and moderate income borrowers relative to higher income borrowers for three different historical periods. Second, for the loans originated between 2002 and 2007 applying the tighter underwriting standards of the post-crisis period dramatically reduces default risks across income groups, indicating the importance of underwriting standards for sustainable lending and homeownership. Finally, for all but very low income borrowers, credit risk is well accounted for by standard underwriting risk factors.

Keywords: Low income lending; Credit risk; Underwriting standards (search for similar items in EconPapers)
JEL-codes: G21 R31 R38 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:80:y:2020:i:c:s0166046217304295

DOI: 10.1016/j.regsciurbeco.2018.07.013

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