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Shared-Equity Mortgages, Housing Affordability, and Homeownership
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Published 2007
Author Andrew Caplin, James H. Carr, Frederick Pollock, Zhong Yi Tong, Kheng Mei Tan, Trivikraman Thampy
Source Fannie Mae Foundation
URL Click here to download the full document
PDF: 32 pages, 325 kbytes


The recent increase in the rate of homeownership, from 65 percent in 1995 to 69 percent in 2005, appears difficult to sustain. The long real estate boom has created affordability problems for many renters; fiscal constraints severely limit funds available for housing affordability programs; and the burst of private sector innovation that introduced new affordability-enhancing mortgages has run its course. The authors of this report argue that the development of new shared-equity mortgages (SEMs) that blur the lines between debt and equity would propel further advances in homeownership. The rationale for these mortgages is that the broad financial markets value shares in individual housing returns more highly than do hard-pressed prospective homeowners. This report describes a new class of SEM and provides survey evidence that the majority of households would prefer these SEMs over currently popular affordability-oriented mortgages. Financial simulations confirm the value of securitized SEMs to investors. Simple computations suggest that introduction of SEMs would be likely to increase the U.S. homeownership rate between 1 percent and 1.5 percent. Their introduction would also reduce borrower vulnerability and add to the stability of the housing finance system. Yet given their novelty, realization of this potential would require sympathetic overhauls of the regulatory, legislative, and fiscal structures relating to U.S. mortgages.

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