Homeownership and Nontraditional and Subprime Mortgages

Abstract

This article documents the growth and geographic distribution of nontraditional mortgages (NTMs) and subprime mortgages during 2000-2006, and examines the association between these products and homeownership at the county level between 2000 and 2012. It finds a significant relationship between the origination of NTM and subprime mortgages during the boom and changes in the number of homeowners (positive during the 2000-2006 period and negative during the 2006-2012 period) but no significant relationship with the change in the homeownership rate. Looking at specific categories of the population, the results indicate a positive relationship between the presence of NTMs and subprime mortgages and increased numbers of homeowners for young households as well as for low income and minority households, but the relationship is smaller than for the general population. Overall, the relationship between NTMs and homeownership is stronger than the relationship between subprime mortgages and homeownership during the boom and it is less negative during the bust.

Lending competition, regulation, and nontraditional mortgages

“…Similar to Acolin et al. (2017), we define NTM as a mortgage loan with at least one of the following characteristics: (1) has an IO or negative amortization period; (2) is an option ARM; (4) has a balloon payment; (4) has a maturity term over 30 year; (5) has low or no documentation. Each of these loan features relieves borrowers from income constraints to some extent, and they differ substantially from the features of the traditional “American Mortgage” (Green & Wachter, 2005), which are usually fixed rate, 30‐year, fully amortizing loan with full (income, asset, and employment) verification (full documentation).…”

“…Panel b: Share of NTMs originated and average mSA level lending concentration HHI [Colour figure can be viewed at http://wileyonlinelibrary.com] Note : The lending concentration HHIs are calculated by the authors based on the public HMDA data, and the share of NTMs is from Acolin et al. (2017) and is based on the BlackBox data. BlackBox, LLC (now part of Moody's) is a data aggregator that provides mortgage servicing information.…”

Citizen Contacting in Response to Crisis: Voicing Grievances to the Consumer Financial Protection Bureau

“…Payments are commonly burdensome relative to the homeowner’s monthly income (Green, 2008). By 2006, subprime loans amounted to more than 20% of all new mortgage originations, substantially exceeding 20% in some high growth locations in California, Florida, Nevada, Arizona and the Washington, DC and New York City metro areas (Acolin et al, 2017; Bostic & Lee, 2008; Ryan et al, 2011; Sanders, 2008, p. 257).…”

“…Similarly, the geographic distribution of subprime mortgages was quite uneven, reflecting the areas where housing prices soared in the presence of low and moderate income buyers. Nontraditional mortgage lending was also more concentrated in locations with higher percentages of black and Latino households (Acolin et al, 2017, pp. 398–402; Calem et al, 2004; Hwang et al, 2014; Hall et al, 2015).…”

Evidence and Innovation in Housing Law and Policy

“…For many borrowers, nontraditional loans may even be beneficial if the terms aren't too onerous and the borrowers understand them. Acolin, Bostic, An, and Wachter (2017) show that nontraditional mortgages did increase the homeownership rate in most communities during the recent housing boom. Unfortunately, these mortgages also exacerbated the bust, but after the dust settled, they still were associated with an increase in homeowners overall.…”