This paper traces the effects which federal policy has had on home mortgage finance in the United States. In the past, the phases of intervention have been described as 1) the New Deal responses to the Great Depression, 2) the creation of the Government- Sponsored Enterprises and promotion of the secondary market, and 3) the deregulation of the banking industry. This paper uses the historical backdrop to examine the current era of intervention, including the Making Home Affordable initiative. The paper concludes with policy recommendations that tie past experience with current problems and explores shared equity homeownership as a sustainable model for the future. / text

The debate over federal income tax treatment of home mortgage interest (HMI) has largely overlooked an important, and possibly unintended political and economic consequence of our federal income tax system. The distribution of the for home mortgage interest deduction tax benefit across states is a possible missing consideration. Specifically, this study offers a federalist1 perspective on the federal income tax benefit from the deduction for HMI - one of the largest personal federal tax expenditures on the books. This dissertation analyzes current national political rhetoric from a federalist perspective. Discussion also includes background, current status, and proposed changes to the tax code for of the HMI deduction. First, a Tobit regression is used to analyze the distribution of the HMI tax benefit across states and to test for disproportionate distribution across states in benefit derived from the federal income tax deduction for home mortgage interest beyond that which is explained by income. This initial part of the study is also the precursor to a hierarchical analysis seeking to identify significant factors affecting the distribution of the benefit of the HMI deduction across states. The Ernst and Young/University of Michigan Individual Model File of 1992 tax returns is the primary data source for this initial part of the investigation. The second part of the analysis examines the effect of sets of factors in a causal hierarchy on the HMI deduction benefit. By first controlling for the effects of personal and identifiable state characteristics on HMI deduction benefit, the possible existence of a residual socio-political force is tested. The primary data sources for this part of the study are the 1990 Census of Population and Housing 5% Public Use Microsample as well as tax data extracted from the Statistics of Income, Individual Public Use Tax File, Level III Sample, as well as others. Ridge regression is used for hypothesis testing. Results indicate the existence of a significant difference in the benefit from home mortgage interest deduction across states holding income constant. This study also finds that a set of personal as well as a set of state market, legal and tax characteristics significantly influence the taxpayer's HMI deduction benefit, and that a residual difference in benefit across states after controlling for personal and identified state attributes. Future study should examine the source of residual across state differences (attributed to socio-political differences between states). Federal housing goals may be frustrated as the effective subsidy actually helps support higher home prices in areas where high housing costs may already be a barrier to potential new homeownership. The concepts and techniques applied in this study could easily be applied to other provisions of federal tax, or to any other tax system in a federation for that matter.

Residential racial segregation has been perennially viewed as a major urban problem in the United States. Meanwhile, the single-family mortgage market has been an influential factor in determining segregation since at least the 1930s. Although many prior studies rightly have focused on the very real individual and social costs of subprime loans and related loan features, the greater leverage they afford also may have allowed some, especially minority, homebuyers to purchase properties they otherwise would not have been able to afford. Limited loan-to-value and payment-to-income ratio requirements have constrained borrowers from prime, conventional lenders, and relaxing these standards might allow some borrowers to purchase more expensive homes, possibly in higher quality neighborhoods. Additionally, if minority borrowers disproportionately obtained high-leverage loans, the effect of these loans on neighborhood choice may be greater for minorities than non-Hispanic whites. Since higher-quality neighborhoods are disproportionately non-Hispanic white or racially diverse, the increase in high-leverage mortgages might mitigate the neighborhood quality gap between minorities and non-Hispanic whites and reduce levels of racial/ethnic segregation. Accordingly, this dissertation focuses on two research questions: 1) whether high-leverage home purchase loans enabled borrowers to purchase more expensive homes and homes in higher-quality neighborhoods; and 2) whether these loans affected the racial/ethnic segregation of homebuyers at the metropolitan level. Since blacks and Hispanics comprise significant minorities in many metropolitan areas in the 2000s, I examine the questions for three racial/ethnic groups: non-Hispanics whites, blacks, and Hispanics. To answer the first question, household housing demand and neighborhood quality models are estimated using the American Housing Survey data. To answer the second question, metropolitan area segregation models are estimated primarily using the American Community Survey and the Home Mortgage Disclosure Act. Both cross-sectional and fixed-effect panel segregation models are estimated using a two-stage least squares approach with chosen instruments. I find that the use of high-leverage loans increases housing demand and neighborhood quality, holding other household characteristics constant. I also find that high-leverage loans have a substantial, negative effect on black segregation, while the effect on Hispanic segregation is somewhat ambiguous. The findings suggest that policymakers should consider the impact of regulations affecting allowable loan-to-value and payment-to-income ratios on borrowers' residential choice and urban form, as well as on default risk.