سهمیه بندی اعتباری در بازار وام مسکن ایالات متحده : شواهدی از تغییرات در سهم بازار FHA

This paper examines the nature of mortgage credit rationing across geographic markets and time. Particular attention is paid to the response of conventional mortgage supply to higher risk conditions associated with regional recessions. We develop a series of four indirect tests based on the spatial variation of the FHA share of mortgages, both endorsements and applications, as well as FHA and conventional rejection rates. Results of these four tests indicate that conventional mortgage underwriting criteria do not become more flexible and may even become more demanding when local economic conditions deteriorate. This result indicates the use of non-price credit rationing in the mortgage market and suggests a special role for FHA-insured mortgages as a mechanism for maintaining mortgage credit supply in declining housing markets.

In this paper, we test the nature and existence of non-price credit rationing in single-family residential mortgage markets in the United States by exploit- ing the institutional fact that conventional lenders, including private mortgage insurers (PMIs), are free to vary conventional underwriting criteria across spatial markets (but not within markets), whereas the Federal Housing Administration (FHA) imposes spatially uniform underwriting standards for all FHA-insured mortgages. 2 Thus, in originating FHA and conventional mortgages, lenders in spatially defined mortgage markets across the United States are free to alter conventional mortgage underwriting criteria to reflect changing economic con- ditions while also offering FHA-insured mortgages with uniform underwriting criteria. In areas experiencing an economic downturn, the risk of mortgage lending increases and the percentage of low-risk mortgage applicants falls. The result- ing decline in demand for lower-risk conventional mortgages means that con- ventional lenders must cut prices if they are to maintain their market share in declining areas. Cutting price explicitly, in the form of lower mortgage rates or insurance fees, is inconsistent with observed price invariance over space. 3 Thus, if conventional lenders attempt to maintain their market share in declining (higher risk) areas, they must do so by relaxing underwriting criteria. Alterna- tively, conventional lenders may maintain underwriting standards and allow their market share to fall as fewer applicants are able to qualify. We develop a num- ber of indirect tests for non-price rationing by conventional lenders in response to local differences in economic conditions, based on the implications of that behavior for the relative shares of FHA and conventional mortgage activity. Recently expanded Home Mortgage Disclosure Act (HMDA) reporting requirements covering virtually all mortgage banking firms allow for the observation of spatial variation in patterns of applications, endorsements, and rejections for both conventional and FHA mortgages. Supplementing HMDA data with FHA internal records allows us to characterize the risk structure ofFHA endorsements. Thus, for the first time, we can test a number of hypothe- ses concerning the nature of credit rationing by conventional mortgage lenders. We also find that substantial variation in the FHA’s share of mortgage activity persists even after adjusting for the effects of the FHA loan limits and for the institutional composition of local mortgage markets. We are not aware of any previous similar study of FHA market shares that considers the full range of applications, endorsements, and rejections analyzed here. However, there is a literature on FHA mortgage choice that relies on survey microdata from the American Housing Survey (AHS), the Survey of Consumer Finances, or similar surveys. 4 Because these surveys examine rela- tively few new mortgages each year in each Metropolitan Statistical Area (MSA) studies using them cannot evaluate spatial variation in credit rationing behavior between FHA and conventional lenders. Indeed, these studies implicitly assume that underwriting criteria do not vary spatially. We devise a series of tests designed to detect the nature of credit rationing for conventional mortgages in spatially distinct mortgage markets, specifically MSAs. In contrast to other studies, we take advantage of the unique position of the FHA as a specialized high-cost, high-risk, spatially invariant insurance pro- gram in constructing our tests. Appropriate tests for the nature of credit rationing in mortgage markets require examination of the way in which a number of mar- ket indicators, in addition to FHA market share, vary with risk. Accordingly, we first present a model of market responses to shifting MSA credit risk conditions and then perform a number of tests based on this model. The empirical results are consistent with the findings of Duca and Rosenthal [7] and indicate that FHA market shares increase as economic uncertainty increases. Taken together, these tests provide a substantial indication of the role of spatial risk differentials and credit rationing by conventional lenders in mortgage lending.

This paper builds on existing literature on the microfoundations of choice between conventional and FHA-insured mortgages. We formulate a model of the effects of location-specific variation in credit risk on FHA market share. Our model allows us to utilize the FHA’s policy of ignoring geographic variation in credit risk to explore the nature and effects of credit rationing by conventional lenders. Based on this theory, and using a combination of HMDA data recently expanded in terms of coverage to include most FHA lenders and data from the FHA system itself, we estimate a series of four simple reduced-form models: FHA share of applications and originations, and FHA and conventional rejec- tion rates. Taken together, these indirect tests strongly suggest that conventional mortgage lending criteria are not relaxed in areas experiencing recession or longer-term decline. Instead, conventional underwriting criteria are either main- tained or tightened in the face of local recession, and FHA and conventional shares respond accordingly. Apparently conventional mortgage suppliers reject the possibility of relaxing underwriting criteria and raising mortgage insurance prices to preserve market share in declining areas. For home buyers seeking housing priced at or below the recently increased FHA maximum mortgage amount, FHA insurance is available to maintain mortgage credit supply during recessions or longer declines. For housing priced significantly above the FHA mortgage limit, the effects of non-price rationing of conventional mortgages may be more pronounced. We also find that the composition of lenders active in the market and the racial composition of the MSA have an impact on FHA market share. These results should not surprise those familiar with the literature on the role of FHA. Finally, it appears that there is considerable geographic variation in FHA market share remaining to be explained in future research.