 GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing GoalsXudong An and Raphael Bostic No 8573, Working Paper from USC Lusk Center for Real Estate Abstract: There is a seeming paradox about the "affordable housing goals": GSE activities in targeted communities have increased under the goals but there has been little measurable improvement in housing market conditions in these communities. This paper seeks to reconcile this paradox by focusing on linkage between GSE purchases and FHA activities. We build a simple model based on credit rationing theory that suggests that GSE activities can have a feedback effect on FHA. More aggressive GSE pursuit of targeted borrowers under the affordable housing goals induces potential FHA borrowers with best credit quality to use the conventional market. In response, the FHA applies more strict underwriting standards under new market equilibrium, which results in reduced loan volumes. On balance, these effects can offset and make credit supply and homeownership effectively unchanged. Empirical evidence on changes in GSE and FHA lending after affordable housing goals were made more binding is found to be consistent with the theoretical predictions. Keywords: Affordable Housing; Government-Sponsored Enterprise (GSE); FHA; Homeownership; Undeserved neighborhoods; credit rationing (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:luk:wpaper:8573 Access Statistics for this paper More papers in Working Paper from USC Lusk Center for Real Estate Contact information at EDIRC. |
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