How the Source of Financing Discrimination Affects Housing Opportunities for FHA Buyers

Abstract

In this paper we ask whether and why home buyers who use Federal Housing Administration (FHA) loans are excluded from a part of the housing market. Using proprietary data on for-sale real estate listings, we find that 42% of for-sale listings of FHA eligible homes state that FHA offers are not acceptable for the seller. We thus find that the FHA program rules and regulations, while intended to help low income families become homeowners, significantly limit the choice set of properties for these borrowers. We find that while location and time accounts for only about 10% of the variation in whether the FHA offers are acceptable, real estate agents explain over 40% of the variation. We further find that having participated in an FHA transaction (either as a buyer or a selling agent), agents are more likely to have their subsequent listings open to FHA borrowers. We thus conclude that agents play a large role in market access for FHA borrowers, in part because they expect the program to be difficult to navigate. * We thank the Steven L. Newman Real Estate Institute for the generous support.

JEL Classification: R28, R20