Do Two- to Four-Unit Properties Have Higher Credit Risk? An Analysis of Default and Loss Experience
38 Pages Posted: 5 Sep 2016 Last revised: 22 Oct 2016
Date Written: September 2, 2016
Two- to four-family properties make up 19% of all rental housing but receive almost no attention. Using a unique dataset from Freddie Mac and Fannie Mae, we show that, for any given set of loan characteristics and compared with one-unit properties, two- to four-unit properties are more likely to default, its owner-occupied (investment) properties are less (more) likely to liquidate, and all two- to four-unit properties are more likely to have a higher loss severity upon liquidation. Historically, these patterns have led to higher losses on two- to four-unit loans. Current tighten credit results in loss rates much closer to those on one-unit owner-occupied properties, indicating that policymakers can relax the credit requirements of two-to-four properties to better serve affordable rental housing.
Keywords: 2-4 units property; Investor property; Mortgage Default; Loss Given Default
JEL Classification: E65; G21; G28; R28
Suggested Citation: Suggested Citation