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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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    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. Ryan M. Goodstein, 2014. "Refinancing Trends among Lower Income and Minority Homeowners during the Housing Boom and Bust," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 42(3), pages 690-723, September.
    4. 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.
    5. 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.
    6. 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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