Jonathan S. Spader

Mobility and exit from homeownership: Implications for community reinvestment lending

Abstract This study focuses on the transition out of homeownership among community reinvestment loan borrowers, documenting patterns among low‐income and minority households. We show that the higher rates of home‐ownership exit documented among low‐income and minority borrowers in the larger population do not hold for community reinvestment mortgage borrowers. We model the transition, separating the determinants of mobility and tenure choice. Our results show that low‐income and minority homeowners are less likely than their high‐income and white counterparts to move, but no less likely to purchase a new home when they do. These findings are contrasted with the results of a model that specifies the transitions out of homeownership as the purchase of a new home and the return to renting.

Beyond Disparate Impact: Risk-based Pricing and Disparity in Consumer Credit History Scores

Despite the increasing importance of credit scoring to an expanding range of activities, very little is known about the nature of the credit scoring process. This article examines the interaction of credit scoring with risk-based pricing, exploring the potential for credit scoring to contribute to the segmentation of low- and high-cost credit markets. Specifically, it uses a stylized example to illustrate the mechanism through which credit scores may capture disparities in surrounding credit markets, passing them into future periods and other credit markets. In the wake of mounting subprime foreclosures, this mechanism contains the potential to exacerbate the concentrated impacts of the subprime crisis in low-income and minority communities. The article examines this issue in the context of existing regulatory actions.

Three Visions for the Future of the FHA

These three articles on the recent past and the future of the Federal Housing Administration (FHA) express similarly sanguine views of the FHA as an economic entity that can continue to be an important part of the U.S. housing finance system. All three argue that the losses suffered by the FHA in recent yearsweremodest and that its need for recapitalization is not a cause for concern or for policy change moving forward. None suggests that the losses indicate fundamental problems with the FHA’s core activities. Instead, the articles by Weicher and by Willis and Wartell both point to the heavy concentration of recent FHA losses in special programs—nonprofit seller financing and home equity conversion mortgages—and not in the FHA’s core mortgage products and markets. Where the pieces differ is in their visions for the future of the FHA. Weicher points to the historical resilience of the FHA fund and provides counsel that amounts to “keep calm and carry on.” He points out that the FHA’s reserve levels were not intended to be adequate for an economic shock such as the Great Recession, but that otherwise, market cycles have turned weak balance sheets into strong ones. If the title of his article includes “Rebalancing [the FHA’s] Role,” his prescription seems to be to let normal market trends do the rebalancing, and wait to see whether recapitalization is needed. He applauds proposals to increase the FHA’s down-payment requirement, to tighten underwriting standards for borrowers with high debt-to-income ratios and low credit scores, and to continue to raise the mortgage insurance premium. Weicher does not appear to be concerned about loan limits and tends to view calls for returns to lower limits as selfinterested advocacy by the FHA’s competitors. Van Order and Yezer take a narrower vision of the FHA’s role. They call for a return to the FHA’s decades-long role of serving low-to-moderate-income, first-time, and minority homebuyers, while leaving better-off and less systemically constrained households to a reemergent private market. They would like to see that future clarified by an immediate recognition of the losses incurred by the FHA during the Great Recession, to take the issue of recapitalizing the FHA off the table and out of debates about the FHA’s future. They then call for the FHA to quickly return to mortgage limits that restrict its lending to lowerbalance loans and more modest-priced homes, adopting risk-based pricing and a cautious approach to risk layering. In this vision, a prudent approach to managing risk is the foundation for the FHA to serve its traditional market efficiently and to position the FHA to play a countercyclical role when it is needed.

Refinancing transitions and equity extraction among CRA mortgage borrowers

Refinancing transitions can alter both the long-term cost and the sustainability of a homeownership tenure. However, because few datasets allow researchers to follow homeowners from one mortgage to the next, little research exists regarding the extent and nature of refinancing transitions. This article uses uniquely rich data from the Community Advantage Program (CAP) to examine the refinancing decisions of a sample of low-income borrowers with 30-year fixed-rate purchase mortgages. While the majority of refinancing CAP borrowers secured lower-cost prime loans, a minority refinanced into adjustable-rate mortgages and into products with above-prime interest rates. The empirical analysis documents the refinancing transitions made by CAP borrowers and explores the role of equity extraction in the refinancing decision. Refinancing motivated by a desire to secure a lower interest rate is shown to be substantively distinct from refinancing that includes equity extraction. This difference carries over into borrowers’ selection of refinancing products, as borrowers who extract equity transition more frequently into non-prime FRM and ARM products than borrowers that rate refinance.