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Credit History and the FHA-Conventional Choice

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  • Anthony Pennington-Cross
  • Joseph Nichols

Abstract

Models explaining whether households choose conventional or FHA mortgage financing typically use differential insurance premiums, loan-to-value (LTV) and payment-to-income underwriting standards, and local economic conditions to explain household behavior. Using a large and geographically diverse sample, we expand the standard choice model by including measures of borrower credit history. We find that the ability of a homebuyer to avoid credit problems is an important part of the FHA-conventional choice. In addition, credit scores of FHA borrowers are worse on average than those of conventional borrowers, but as LTV increases credit scores of conventional borrowers deteriorate. Copyright American Real Estate and Urban Economics Association.

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Bibliographic Info

Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 28 (2000)
Issue (Month): 2 ()
Pages: 307-336

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Handle: RePEc:bla:reesec:v:28:y:2000:i:2:p:307-336

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Cited by:
  1. Ambrose, Brent W. & Pennington-Cross, Anthony & Yezer, Anthony M., 2002. "Credit Rationing in the U.S. Mortgage Market: Evidence from Variation in FHA Market Shares," Journal of Urban Economics, Elsevier, vol. 51(2), pages 272-294, March.
  2. Kristopher S. Gerardi & Paul S. Willen, 2009. "Subprime mortgages, foreclosures, and urban neighborhoods," Working Paper 2009-01, Federal Reserve Bank of Atlanta.
  3. Paul K. Asabere & Forrest Huffman, 2008. "FHA/VA Financing and Price Discounts," Journal of Real Estate Research, American Real Estate Society, vol. 30(2), pages 191-206.
  4. Souphala Chomsisengphet & Ronel Elul, 2005. "Bankruptcy exemptions, credit history, and the mortgage market," Working Papers 04-14, Federal Reserve Bank of Philadelphia.
  5. Ambrose, Brent W. & Pennington-Cross, Anthony, 2000. "Local economic risk factors and the primary and secondary mortgage markets," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 683-701, December.
  6. Jonathan Spader & Roberto Quercia, 2012. "CRA Lending in a Changing Context: Evidence of Interaction with FHA and Subprime Originations," The Journal of Real Estate Finance and Economics, Springer, vol. 44(4), pages 505-525, May.
  7. Gyourko, Joseph & Hu, Dapeng, 2002. "Spatial distribution of affordable home loan purchases in major metropolitan areas: documentation and analysis," Regional Science and Urban Economics, Elsevier, vol. 32(5), pages 549-589, September.
  8. David K. Musto & Nicholas S. Souleles, 2005. "A Portfolio View of Consumer Credit," NBER Working Papers 11735, National Bureau of Economic Research, Inc.
  9. Rubén Hernández-Murillo & Rajdeep Sengupta, 2011. "The effect of neighborhood contagion on mortgage selection," Working Papers 2011-036, Federal Reserve Bank of St. Louis.
  10. Joseph Nichols & Anthony Pennington-Cross & Anthony Yezer, 2004. "Borrower Self-Selection, Underwriting Costs, and Subprime Mortgage Credit Supply," The Journal of Real Estate Finance and Economics, Springer, vol. 30(2), pages 197-219, November.
  11. John Karikari & Ioan Voicu & Irene Fang, 2011. "FHA vs. Subprime Mortgage Originations: Is FHA the Answer to Subprime Lending?," The Journal of Real Estate Finance and Economics, Springer, vol. 43(4), pages 441-458, November.
  12. Gary Painter & Christian L. Redfearn, 2001. "The Role of Interest Rates in Influencing Long-Run Homeownership Rates," Working Paper 8629, USC Lusk Center for Real Estate.
  13. Brent Smith, 2012. "Lending Through the Cycle: The Federal Housing Administration’s Evolving Risk in the Primary Market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 40(3), pages 253-271, September.

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