Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision

36 Pages Posted: 18 Aug 2000 Last revised: 5 Apr 2008

See all articles by William C. LaFayette

William C. LaFayette

Ohio State University (OSU)

Donald R. Haurin

Ohio State University (OSU) - Economics

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

Date Written: March 1995

Abstract

Earlier research has shown that lender income and wealth constraint ratios discourage homeownership. This empirical research has been based on home purchasers using an 80 percent loan-to-value (LTV) fixed-rate conventional loan. Employing the same assumption, we find that the constraints lowered the ownership rate of our 1919 young home purchasers by about 20 percentage points. However, households are not restricted to putting 20 percent down and choosing a fixed- rate loan. When we allow households to select the optimal LTV and mortgage type (adjustable or fixed-rate with Federal Housing Administration (FHA) or conventional insurance), the percentage of our sample that is credit constrained declines from 71 to 49. Moreover, the measured impact on the homeownership rate of the constraints falls to only 4 percentage points. Further, FHA loans are estimated to increase homeownership by only 0.1 to 0.2 percentage points.

Suggested Citation

LaFayette, William C. and Haurin, Donald R. and Hendershott, Patric H., Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision (March 1995). NBER Working Paper No. w5074. Available at SSRN: https://ssrn.com/abstract=225852

William C. LaFayette

Ohio State University (OSU)

2100 Neil Avenue
Columbus, OH OH 43210
United States

Donald R. Haurin

Ohio State University (OSU) - Economics ( email )

154 N. Oval Mall
1010G Derby Hall
Columbus, OH 43210-1172
United States
614-292-0482 (Phone)
614-292-9530 (Fax)

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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