Publication DateSeptember 2010
Author(s)Anthony Pennington-Cross, Chao Yue Tian, Roberto G. Quercia
To assess the sustainability of affordable housing credit, a unique sample of community reinvestment loans is analyzed.
Conditional probability (hazard) of default tends to be higher and prepayment lower for lower-income groups. However, after controlling for observed mortgage and borrower characteristics, the hazards converge and even reverse in order of magnitude.
Furthermore, very low-, low-, and moderate-income groups react with distinct patterns to changes in the loan-to-value ratio and the local unemployment rate.
Finally, more financially stretched borrowers (those with high debt-to income ratios) seem to initiate the default option more aggressively as home equity declines.