Saturday, 22 October 2011: 2:40 PM
With the Federal Housing Administration (FHA) serving the lead role in regenerating the home mortgage market it is important to consider how their role and lending patterns have evolved over the last five years. This paper presents an analysis of the distribution of home purchase mortgages insured by FHA in the primary mortgage market. Utilizing a sample of loan originations the distribution of the market served by FHA and conventional lenders is modeled through this current cycle. Results indicate that FHA market shares in the early years of the observation period (2003 through 2006) are concentrated in zip codes with higher economic risk characteristics and obtained by high risk borrowers. As dependence on FHA grows beginning in 2007 there is a transformation in the characteristics of the insured loans. One potential conclusion from this result is that FHA was forced to accept lower quality loans as competition from more nimble private lenders with lower access hurdles and more rapid processing expanded into markets traditionally served by FHA. Unexpectedly, the analysis also reveals that FHA loan distribution fails to exhibit a targeted racial bias toward neighborhoods with African American Concentration.