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Abstract: 

Using a unique data set that captures statewide activity over several years, this paper examines (1) how state housing finance agencies (HFAs) have allocated mortgage revenue bond (MRB) subsidies to home buyers in different income groups and (2) whether there has been any regional variation in targeting subsidized loans to prospective home buyers who likely would not qualify for a conventional loan. Based on a standard housing demand model and a panel data set for the 1996-2003 period, we found a positive income elasticity, consistent with previous literature, a slight tendency to favor minority ownership, and wide regional variations. Further analysis revealed a disparity among states in targeting to the lowest income group--the group with income of less than 50% of area median income (AMI). Some states have provided MRB subsidies to the poor, while other states have favored home buyers who might have qualified on their own but who had income slightly below the program's threshold. From a public policy perspective, Congress may want to consider updating the eligibility criteria specified in the law.

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Affiliations:  1: Educated Consumer Project; 2: Radford University.