Mortgage Lending and Housing Markets.

• Author: Ferreira, Fernando

At the onset of the last housing crisis, it was widely believed that the lenders who extended subprime mortgages and the homeowners who had taken out those loans were responsible for the housing boom, bust, and ensuing economic crisis. With the benefit of hindsight--and aided by much better data and research designs--academic researchers now have a clearer view. The credit expansion during the housing boom was not concentrated in the subprime sector, and the majority of foreclosures during the crisis were not associated with subprime mortgages. African-American and Hispanic homebuyers paid higher mortgage costs relative to comparable homebuyers during the last cycle, independent of whether they used subprime or prime loans. Finally, those minorities were hurt most by the foreclosure crisis, especially when they bought homes at or near the peak of the housing boom.

Much of my recent research focuses on understanding three key issues related to subprime mortgages and minority borrowers during the last housing cycle: the role of subprime loans during the housing boom, the foreclosure crisis, and the vulnerability of minority homeowners during the boom and bust.

Subprime Mortgages and the Housing Boom

Joseph Gyourko and I uncover basic stylized facts about the foreclosure crisis by constructing a panel of housing ownership sequences that contains more than 33 million ownership spells from 1997 to 2012. (1) These data, acquired from CoreLogic, are based on the universe of housing transactions for almost 100 Metropolitan Statistical Areas. We merge them with the Home Mortgage Disclosure Act files in order to add more loan features and demographics. Importantly, this panel includes details on every type of option available for financing a home purchase--prime and subprime mortgages, cash, and governmental loans--as well as for refinancing during an ownership spell. This fixes the missing data problem of research conducted early in the cycle that relied solely on subprime mortgage data.

Figure 1 documents the market shares of the different sources of funding used by homeowners. The subprime sector, which included many alternative loans issued to higher-risk borrowers, indeed expanded its share of the market over the course of the housing boom, roughly doubling to just over 20 percent. However, this came at the expense of the government-insured subsector--Federal Housing Administration and Veterans Affairs loans--not the prime mortgage sector. Prime mortgages were always the dominant loan type across the cycle, with their share hovering around 60 percent, and in fact increasing almost 10 percentage points from 2000 to 2006. Finally, those using only cash to purchase a house constituted a relatively stable 10 to 11 percent of the sample until 2010, after which this share increased to 16 percent, due to the unavailability of credit...