ABSTRACT
This chapter places the current study in the context of recent analyses of race, default risk, and mortgage lending. Analyses of mortgage defaults focus fundamentally on variables influencing borrower equity in the property and borrower ability to service the loan as scheduled. Recent years have witnessed widespread controversy and policy debate concerning allegations of racial discrimination in mortgage lending. In a nondiscriminatory world, lenders engage in credit rationing only as required to maximize profits. Loan applicants and neighborhoods are often characterized by higher levels of default risk, relative to the applicant pool as a whole. Estimated default probabilities associated with borrower and neighborhood characteristics may further provide new insights concerning the enhancement of existing Federal Housing Administration (FHA) loan underwriting requirements. The vast majority of FHA-insured loans have been processed under the Direct Endorsement program. This program allows certified lenders to underwrite FHA loans directly without seeking prior FHA approvals.
