GSE Activity, FHA Feedback, and Implications for the Efficacy of the Affordable Housing Goals
There is a seeming paradox regarding 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 present a simple theoretical framework suggesting 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. Changes to the housing market will depend on the FHA response to the loss of its best credits, with many different possible outcomes for credit supply and homeownership, including scenarios in which they remain effectively unchanged. While market-levelbenefits might not be forthcoming, the shift from FHA to less costly conventional loans is clearly beneficial for affected borrowers. Two-stage least squares estimates of the relationship between GSE and FHA lending after the affordable housing goals were made more binding are found to be consistent with the theoretical predictions
Year of publication: |
[2013]
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Authors: | An, Xudong |
Other Persons: | Bostic, Raphael W. (contributor) |
Publisher: |
[2013]: [S.l.] : SSRN |
Description of contents: | Abstract [papers.ssrn.com] |
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