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Credit History and the FHA–Conventional Choice
Author(s) -
PenningtonCross Anthony,
Nichols Joseph
Publication year - 2000
Publication title -
real estate economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.064
H-Index - 61
eISSN - 1540-6229
pISSN - 1080-8620
DOI - 10.1111/1540-6229.00803
Subject(s) - underwriting , economics , payment , loan , value (mathematics) , sample (material) , actuarial science , loan to value ratio , mortgage insurance , finance , insurance policy , general insurance , statistics , chemistry , mathematics , chromatography
Models explaining whether households choose conventional or FHA mortgage financing typically use differential insurance premiums, loan‐to‐value (LTV) and payment‐to‐income underwriting standards, and local economic conditions to explain household behavior. Using a large and geographically diverse sample, we expand the standard choice model by including measures of borrower credit history. We find that the ability of a homebuyer to avoid credit problems is an important part of the FHA–conventional choice. In addition, credit scores of FHA borrowers are worse on average than those of conventional borrowers, but as LTV increases credit scores of conventional borrowers deteriorate.