Risks and Incentives in Underserved Mortgage Markets

Posted: 15 Nov 1996

See all articles by Brent W. Ambrose

Brent W. Ambrose

Pennsylvania State University

William N. Goetzmann

Yale School of Management - International Center for Finance; National Bureau of Economic Research (NBER)

Date Written: November 1996

Abstract

Subsidized loans may help increase home ownership in low income neighborhoods with positive social benefits, however there are risks and costs to the homeowners themselves. Home ownership increases incentives to maintain property and neighborhood, as well as decreasing the outflow of rents from low-income zones. These benefits, however are not costless to participants. With a mortgage comes the possibility of a default, the financial demands of maintenance, the reduction in alternate investment opportunities, an increased exposure to fluctuations in local economic conditions, and a drastic reduction in the liquidity of personal wealth. In this paper we examine the role of the owner-occupied house in the asset allocation decision of a family living in an area characterized as a low income neighborhood. We find that the current subsidies are likely to be too low relative to the costs. In particular, the tax law makes home ownership relatively less attractive to low-income families. This may explain a lack of home-ownership and thus, mortgage lending in low-income neighborhoods.

JEL Classification: R21

Suggested Citation

Ambrose, Brent W. and Goetzmann, William N., Risks and Incentives in Underserved Mortgage Markets (November 1996). Available at SSRN: https://ssrn.com/abstract=9176

Brent W. Ambrose

Pennsylvania State University ( email )

University Park, PA 16802-3306
United States
814-867-0066 (Phone)
814-865-6284 (Fax)

William N. Goetzmann (Contact Author)

Yale School of Management - International Center for Finance ( email )

165 Whitney Ave.
P.O. Box 208200
New Haven, CT 06520-8200
United States
203-432-5950 (Phone)
203-436-9252 (Fax)

HOME PAGE: http://viking.som.yale.edu

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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