How Mortgage Finance Affects the Urban Landscape

85 Pages Posted: 18 Aug 2015

See all articles by Sewin Chan

Sewin Chan

New York University (NYU) - Robert F. Wagner Graduate School of Public Service

Andrew Haughwout

Federal Reserve Bank of New York

Joseph S. Tracy

National Bureau of Economic Research (NBER); Federal Reserve Bank of Dallas

Date Written: 2015-02-01

Abstract

This chapter considers the structure of mortgage finance in the U.S., and its role in shaping patterns of homeownership, the nature of the housing stock, and the organization of residential activity. We start by providing some background on the design features of mortgage contracts that distinguish them from other loans, and that have important implications for issues presented in the rest of the chapter. We then explain how mortgage finance interacts with public policy, particularly tax policy, to influence a household's decision to own or rent, and how shifts in the demand for owner-occupied housing are translated into housing prices and quantities, given the unusual nature of housing supply. We consider the distribution of mortgage credit in terms of access and price, by race, ethnicity, income, and over the lifecycle, with particular attention to the role of recent innovations such as non-prime mortgage securitization and reverse mortgages. The extent of negative equity has been unprecedented in the past decade, and we discuss its impact on strategic default, housing turnover, and housing investment. We describe spatial patterns in foreclosure and summarize the evidence for foreclosure spillovers in urban neighborhoods. Finally, we offer some thoughts on future innovations in mortgage finance.

Keywords: mortgage, cities

JEL Classification: G21, R21, R31

Suggested Citation

Chan, Sewin and Haughwout, Andrew F. and Tracy, Joseph, How Mortgage Finance Affects the Urban Landscape (2015-02-01). FRB of New York Staff Report No. 713, Available at SSRN: https://ssrn.com/abstract=2646036 or http://dx.doi.org/10.2139/ssrn.2646036

Sewin Chan (Contact Author)

New York University (NYU) - Robert F. Wagner Graduate School of Public Service ( email )

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Andrew F. Haughwout

Federal Reserve Bank of New York ( email )

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Joseph Tracy

National Bureau of Economic Research (NBER) ( email )

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Federal Reserve Bank of Dallas ( email )

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