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

See all articles by Laurie S. Goodman

Laurie S. Goodman

The Urban Institute - Housing Finance Policy Center

Jun Zhu

Urban Institute

Date Written: September 2, 2016

Abstract

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

Goodman, Laurie S. and Zhu, Jun, Do Two- to Four-Unit Properties Have Higher Credit Risk? An Analysis of Default and Loss Experience (September 2, 2016). Available at SSRN: https://ssrn.com/abstract=2833936 or http://dx.doi.org/10.2139/ssrn.2833936

Laurie S. Goodman

The Urban Institute - Housing Finance Policy Center ( email )

2100 M Street NW
Washington, DC 20037
United States

Jun Zhu (Contact Author)

Urban Institute ( email )

2100 M Street N.W.
Washington, DC 20037
United States

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