Subprime Lenders and Mortgage Market Completion

Subprime Lenders and Mortgage Market Completion Without a subprime market, some borrowers by virtue of poor credit history, unstable income, and other characteristics are unable to qualify for a mortgage. With a subprime market, there is a more complete credit supply schedule with the market pricing for poorer credit quality in the mortgage rate. By completing the capital market, subprime lenders reduce borrowing constraints. The result is a social welfare gain. Low-credit applicants otherwise denied funding are able to qualify by paying higher interest rates in exchange for offering more equity or lower loan-to-value ratios. This prediction is consistent with the subprime applicants financing or refinancing their mortgages at relatively low loan-to-value ratios. The Journal of Real Estate Finance and Economics Springer Journals

Subprime Lenders and Mortgage Market Completion

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Kluwer Academic Publishers
Copyright © 2005 by Springer Science + Business Media, Inc.
Economics; Regional/Spatial Science; Financial Services
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