Housing Finance and Stratification in the United States: How Mortgage-Origination Patterns Structure Household Wealth-Building Trajectories

• In Event: 150 - Regular Session. Housing Finance, Foreclosures and Evictions

Abstract

This paper contributes empirically and methodologically to prior literature on housing finance and inequality, exploring how mortgage-origination patterns have changed over the past thirty years, and with what consequences. Specifically, this paper uses statistical analysis of American Housing Survey data from 1985 to 2013, in combination with financial modeling, to analyze whether the distribution of mortgage characteristics – even within the most traditional segments of the mortgage market – creates divergent wealth-building opportunities for low-income versus high-income households. In addition to analyzing stratification patterns in the traditional mortgage market as a whole, this paper also quantifies and compares stratification trends within four submarkets, including the: conventional home-purchase market; conventional refinance market; government home-purchase market; and government refinance market. This paper presents five key findings. First, households with higher incomes receive mortgages that enable them to build equity at a lower cost and more quickly than lower-income households. Second, this stratification pattern characterizes even the most traditional and purportedly wealth-equalizing segments of the market. Third, this stratification pattern is twofold, involving both stratification between submarkets and stratification within submarkets. Fourth, this stratification pattern has not always been present, but rather emerged in the early 1990s and has remained stable over the past two decades. Finally, income and temporal origination trends exacerbate these stratification dynamics. Ultimately, by analyzing stratification within the core market for homeownership policies, and by strengthening methodological approaches used in prior studies, this paper provides more comprehensive insight into the role that mortgage finance plays in shaping U.S. wealth inequalities.

Author

• Megan Peppel, University of California-Berkeley