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Shared Equity Mortgages, Housing Affordability, and Homeownership

Fannie Mae Foundation Special Report, 2007

32 Pages Posted: 28 Apr 2007  

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

James H. Carr

Federal National Mortgage Association (Fannie Mae)

Frederick Pollock

Morgan Stanley

Zhong Yi Tong

Federal National Mortgage Association (Fannie Mae)

Kheng Mei Tan

Federal National Mortgage Association (Fannie Mae)

Trivikraman Thampy

New York University

Abstract

The homeownership rate rose from 65% in 1995 to 69% in 2005, yet this rise appears difficult to sustain. We argue that the development of new shared equity mortgages (SEMs) that blur the lines between debt and equity would propel further advances in homeownership. The rationale for these mortgages is that the broad financial markets values shares in individual housing returns higher than do hard-pressed prospective homeowners. We describe a new class of SEM and provide survey evidence that the majority of households would prefer these SEMs over interest only and other currently popular mortgages. Financial simulations confirm the value of the securitized SEMs to investors. We present "back of the envelope" computations suggesting an increase in the overall U.S. homeownership of rate of between 1% and 1.5% would be the likely result of development of SEM markets.

Keywords: Housing Affordability, Mortgages

JEL Classification: G21

Suggested Citation

Caplin, Andrew and Carr, James H. and Pollock, Frederick and Tong, Zhong Yi and Tan, Kheng Mei and Thampy, Trivikraman, Shared Equity Mortgages, Housing Affordability, and Homeownership. Fannie Mae Foundation Special Report, 2007. Available at SSRN: https://ssrn.com/abstract=983100

Andrew Caplin (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-8950 (Phone)
212-995-3932 (Fax)

HOME PAGE: http://www.econ.nyu.edu/user/caplina/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

James H. Carr

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Frederick Pollock

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

Zhong Yi Tong

Federal National Mortgage Association (Fannie Mae)

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Kheng Mei Tan

Federal National Mortgage Association (Fannie Mae)

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

Trivikraman Thampy

New York University ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

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