Format of Original
Mortgage Bankers Association
Research Institute for Housing America
During the 1990s, the role of subprime lending in the mortgage market changed from a small and rarely considered segment into a highly visible and controversial part of the market. While public controversy exists regarding what role subprime lending should take, there has been little evidence showing which homebuyers use subprime lending and how they use it. This issue is examined by using a model of mortgage selection (subprime, Federal Housing Administration [FHA], or prime) for FHA-eligible loans. The results show that borrowers who have had problems managing their financial responsibility and those who carry substantial non–real estate debt are more likely to use subprime lending. But the subprime market does not primarily provide mortgages to traditionally “underserved” households and neighborhoods. Instead, it serves those with enough wealth to compensate for other deficiencies in their mortgage application.