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The Performance of Low-Income and Minority Mortgages

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  • Simon Firestone
  • Robert Van Order
  • Peter Zorn

Abstract

This article analyzes the performance of low-income and minority mortgages (LIMMs) from a large sample of fixed-rate conventional conforming mortgages. We find that low-income borrowers are less likely to prepay when it is optimal, whereas black and Hispanic borrowers prepay more slowly than other borrowers, regardless of the option's value. After controlling for equity, credit history and some other variables, LIMMs default slightly more frequently and have about the same loss severity as other loans. Our results suggest that, for most yield curve situations, differences in LIMM prepayment behavior have little effect on pricing. Copyright 2007 American Real Estate and Urban Economics Association

Suggested Citation

  • Simon Firestone & Robert Van Order & Peter Zorn, 2007. "The Performance of Low-Income and Minority Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 35(4), pages 479-504, December.
  • Handle: RePEc:bla:reesec:v:35:y:2007:i:4:p:479-504
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    References listed on IDEAS

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    1. Michel Glower & Donald R. Haurin & Patric H. Hendershott, 1995. "Selling Price and Selling Time: The Impact of Seller Motivation," NBER Working Papers 5071, National Bureau of Economic Research, Inc.
    2. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, pages 255-269.
    3. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, pages 125-137.
    4. Donald Haurin, 1988. "The Duration of Marketing Time of Residential Housing," Real Estate Economics, American Real Estate and Urban Economics Association, pages 396-410.
    5. Asabere, Paul K & Huffman, Forrest E, 1993. "Price Concessions, Time on the Market, and the Actual Sale Price of Homes," The Journal of Real Estate Finance and Economics, Springer, vol. 6(2), pages 167-174, March.
    6. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, pages 393-410.
    7. Thomas J. Miceli & C.F. Sirmans, 1994. "Reverse Mortgages and Borrower Maintenance Risk," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 22(2), pages 433-450.
    8. Genesove, David & Mayer, Christopher J, 1997. "Equity and Time to Sale in the Real Estate Market," American Economic Review, American Economic Association, pages 255-269.
    9. Case, Karl E & Shiller, Robert J, 1989. "The Efficiency of the Market for Single-Family Homes," American Economic Review, American Economic Association, pages 125-137.
    10. Asabere, Paul K & Huffman, Forrest E & Johnson, Rose L, 1996. "Contract Expiration and Sales Price," The Journal of Real Estate Finance and Economics, Springer, vol. 13(3), pages 255-262, November.
    11. Karl E. Case & Robert J. Shiller & Allan N. Weiss, 1991. "Index-Based Futures and Options Markets in Real Estate," Cowles Foundation Discussion Papers 1006, Cowles Foundation for Research in Economics, Yale University.
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    Cited by:

    1. Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013. "The role of neighborhood characteristics in mortgage default risk: Evidence from New York City," Journal of Housing Economics, Elsevier, vol. 22(2), pages 100-118.
    2. Lei Ding & Roberto G. Quercia & Janneke Ratcliffe, 2008. "Post-purchase Counseling and Default Resolutions among Low- and Moderate-Income Borrowers," Journal of Real Estate Research, American Real Estate Society, vol. 30(3), pages 315-344.
    3. Goldberg, Gerson M. & Harding, John P., 2003. "Investment characteristics of low- and moderate-income mortgage loans," Journal of Housing Economics, Elsevier, vol. 12(3), pages 151-180, September.
    4. Nothaft, Frank E. & Perry, Vanessa G., 2002. "Do mortgage rates vary by neighborhood? Implications for loan pricing and redlining," Journal of Housing Economics, Elsevier, vol. 11(3), pages 244-265, September.
    5. Wendy Edelberg, 2007. "Racial dispersion in consumer credit interest rates," Finance and Economics Discussion Series 2007-28, Board of Governors of the Federal Reserve System (U.S.).

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