Distribution of Credit Risk Among Providers of Mortgages to Lower-Income and Minority Homebuyers

Canner, Glenn B.; Passmore, Wayne; Surette, Brian J.

doi:10.17016/bulletin.1996.82-12

Journal Article

Distribution of Credit Risk Among Providers of Mortgages to Lower-Income and Minority Homebuyers

Abstract: Which institutions bear the credit risk for mortgage lending to lower-income and minority borrowers and in lower-income and predominantly minority neighborhoods? In seeking to answer those questions, the authors went beyond looking at mortgage credit risk in terms of numbers or amounts of loans and developed measures based on factors that affect the riskiness of loans, including loan-to-value ratios and associated default and loss severity rates. In 1995, a nonprofit government mortgage insurer, the Federal Housing Administration, was the major bearer of credit risk for mortgage lending to these groups. The amount of credit risk borne by the profit-seeking originators, insurers, and purchasers that finance conventional mortgages was small in comparison, and the risk was widely distributed among different types of institutions.

JEL Classification: G21; J20;

https://doi.org/10.17016/bulletin.1996.82-12