Why Cyclicality Matters to Access to Mortgage Credit

Boston College Journal of Law and Social Justice, Vol. XVII, Forthcoming

Boston College Law School Legal Studies Research Paper No. 440

43 Pages Posted: 4 Jan 2017 Last revised: 10 Mar 2017

Patricia A. McCoy

Boston College Law School

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate

Date Written: January 4, 2017

Abstract

Virtually no attention has been paid to the problem of cyclicality in debates over access to mortgage credit, despite its importance as a driver of tight credit. Housing markets are prone to booms accompanied by bubbles in mortgage credit in which lenders cut underwriting standards, leading to elevated loan defaults. During downturns, these cycles artificially impede access to mortgage credit for underserved communities. During upswings, these cycles make homeownership unnecessarily precarious for many who attain it. This volatility exacerbates wealth and income disparities by ethnicity and race.

The boom-bust cycle must be addressed in order to assure healthy and sustainable access to credit for creditworthy borrowers. While the inherent cyclicality of the housing finance market cannot be fully eliminated, it can be mitigated to some extent. Mitigation is possible because housing market cycles are financed by and fueled by debt. Policymakers have begun to develop a suite of countercyclical tools to help iron out the peaks and troughs of the residential mortgage market. In this article, we discuss why access to credit is intrinsically linked to cyclicality and canvass possible techniques to modulate the extremes in those cycles.

Keywords: Countercyclical Regulation, Housing Bubbles, Credit Bubbles, Access to Mortgage Credit

JEL Classification: D18, D31, E32, G01, G21, G23, G28, K22, L85, O16, R21, R28, R31, R38

Suggested Citation

McCoy, Patricia A. and Wachter, Susan M., Why Cyclicality Matters to Access to Mortgage Credit (January 4, 2017). Boston College Journal of Law and Social Justice, Vol. XVII, Forthcoming; Boston College Law School Legal Studies Research Paper No. 440. Available at SSRN: https://ssrn.com/abstract=2892138

Patricia Ann McCoy (Contact Author)

Boston College Law School ( email )

885 Centre Street
Newton, MA 02459-1163
United States

Susan M. Wachter

University of Pennsylvania - Wharton School, Department of Real Estate ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104-6330
United States
215-898-6355 (Phone)

HOME PAGE: http://real.wharton.upenn.edu/~wachter/index.html

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