Mortgage Refinancing, Adverse Selection, and FHA's Streamline Program

Mortgage Refinancing, Adverse Selection, and FHA's Streamline Program When interest rates decline, borrowers whose houses have appreciated significantly refinance out of FHA, while those whose houses have not do not. We provide evidence of the negative impact of regular (nonstreamline) refinancing in the mid-1980s on the average quality of FHA's surviving business. We demonstrate this adverse selection both informally and econometrically. We also argue that the sharp reduction in the cost of streamline refinancing (limited documentation, no required appraisal, and so on) in FHA's streamline refinance program in 1992 likely reduced the level of adverse selection in the FHA portfolio during the 1993 to 1994 refinancing boom, and we provide quantitative estimates of the resultant reduction in claim rates. While this reduction in cost almost certainly increased the financial viability of FHA during the middle 1990s, it may not in the long run. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Real Estate Finance and Economics Springer Journals

Mortgage Refinancing, Adverse Selection, and FHA's Streamline Program

Loading next page...
 
/lp/springer_journal/mortgage-refinancing-adverse-selection-and-fha-s-streamline-program-NPfKkmtVpt
Publisher
Springer Journals
Copyright
Copyright © 2000 by Kluwer Academic Publishers
Subject
Economics; Regional/Spatial Science; Financial Services
ISSN
0895-5638
eISSN
1573-045X
D.O.I.
10.1023/A:1007891926416
Publisher site
See Article on Publisher Site

Abstract

When interest rates decline, borrowers whose houses have appreciated significantly refinance out of FHA, while those whose houses have not do not. We provide evidence of the negative impact of regular (nonstreamline) refinancing in the mid-1980s on the average quality of FHA's surviving business. We demonstrate this adverse selection both informally and econometrically. We also argue that the sharp reduction in the cost of streamline refinancing (limited documentation, no required appraisal, and so on) in FHA's streamline refinance program in 1992 likely reduced the level of adverse selection in the FHA portfolio during the 1993 to 1994 refinancing boom, and we provide quantitative estimates of the resultant reduction in claim rates. While this reduction in cost almost certainly increased the financial viability of FHA during the middle 1990s, it may not in the long run.

Journal

The Journal of Real Estate Finance and EconomicsSpringer Journals

Published: Oct 16, 2004

References

You’re reading a free preview. Subscribe to read the entire article.


DeepDyve is your
personal research library

It’s your single place to instantly
discover and read the research
that matters to you.

Enjoy affordable access to
over 18 million articles from more than
15,000 peer-reviewed journals.

All for just $49/month

Explore the DeepDyve Library

Search

Query the DeepDyve database, plus search all of PubMed and Google Scholar seamlessly

Organize

Save any article or search result from DeepDyve, PubMed, and Google Scholar... all in one place.

Access

Get unlimited, online access to over 18 million full-text articles from more than 15,000 scientific journals.

Your journals are on DeepDyve

Read from thousands of the leading scholarly journals from SpringerNature, Elsevier, Wiley-Blackwell, Oxford University Press and more.

All the latest content is available, no embargo periods.

See the journals in your area

DeepDyve

Freelancer

DeepDyve

Pro

Price

FREE

$49/month
$360/year

Save searches from
Google Scholar,
PubMed

Create lists to
organize your research

Export lists, citations

Read DeepDyve articles

Abstract access only

Unlimited access to over
18 million full-text articles

Print

20 pages / month

PDF Discount

20% off