Publication DateJuly 2010
Author(s)Allison Freeman, Bruce DeMarais
An analysis of a unique panel study of low- and moderate-income affordable home loan borrowers reveals no evidence that equity accumulation crowds out other investment activities or leads to excessive borrowing against equity.
This paper identifies the financial implications of equity accumulation for low- and moderate-income (LMI) borrowers. The analysis examines (1) whether the accumulation of equity crowds out other investments, and (2) whether equity is substantially extracted from net worth through other borrowing activities. The data come from a unique panel study of Community Reinvestment Act (CRA) borrowers and matched renters. A copula modeling approach estimates the distribution of a financial portfolio; the distribution is used to simulate the hypothetical effect of equity accumulation on the portfolios of the matched renters. The analysis reveals no evidence that equity accumulation crowds out other investment activities, nor do we find excessive borrowing against equity by CRA beneficiaries.