The potential and limitations of mortgage innovation in fostering homeownership in the United States

This article presents an empirical analysis of mortgage innovation as a veh icle to enable renters, especially those from traditionally underserved pop ulations, to realize homeownership. It examines the financial and underwrit ing criteria of a typology of mortgage products, from those adhering to his torical standards to some of today's most liberal loans, and develops synth etic models to account for all direct purchase costs. These models are cali brated using 1995 data on renter demographic and financial characteristics from the Survey of Income and Program Participation. Compared with historical mortgages, today's more innovative loans increase the number of renters who could hypothetically qualify for homeownership by at least a million and expand potential home-buying capacity by $300 billi on. Certain policies could greatly expand the potential gains. Nevertheless , even the most aggressive innovations can play only a limited role in effo rts to deliver the material benefits of homeownership to underserved popula tions.