| Mortgage insurance compensates lenders for losses in the event of default by borrowers. Whether offered by private mortgage insurance companies or the Federal Housing Administration (FHA), mortgage insurance is often required for borrowers with insufficient wealth for a large downpayment in order to purchase a home. Consequently, mortgage insurance is particularly important for first-time homebuyers and historically underserved populations, such as racial and ethnic minorities. This doctoral dissertation evaluates and discusses mortgage insurance in the context of the housing boom and bust of the early twenty-first century. The first chapter provides an introduction to mortgage insurance in the United States.;The second chapter estimates the degree of substitution between FHA insurance, private mortgage insurance, and a subordinate lien mortgage product that became popular during the housing bubble. Both types of mortgage insurance lost market share during the housing bubble. Only after conventional (i.e., not government-insured) options became less available did FHA fill the void. More recently, FHA lending has declined but has not been replaced by conventional alternatives.;The third chapter evaluates the choice of private or FHA mortgage insurance and the decline in the availability of mortgage insurance, and therefore mortgage credit, as the housing market collapsed. Differences across racial and ethnic minorities are found in both the choice of insurance and the likelihood of denial. In addition, a decline in private insurer's regulatory capital ratios constrained their ability to endorse new mortgages, demonstrating the importance of a public mortgage insurance program such as FHA.;The fourth chapter compares the risk of default of FHA-insured loans to similar privately-insured and uninsured loans. Surprisingly, FHA-insured loans are found to perform as well or better than uninsured loans and substantially better than privately-insured loans. Both FHA and private mortgage insurance, however, are found to suffer from adverse selection.;The final chapter discusses the policy implications of these findings as the American housing finance system is rebuilt after the Great Recession. |
