Homebuilders, affiliated financing arms, and the mortgage crisis

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Date Published 2014
Primary Author Sumit Agarwal, Gene Amromin, Claudine Gartenberg, Anna Paulson and Sriram Villupuram
Other Authors
Theme Retail Housing Finance


Nearly a third of all families purchasing new homes in 2006 obtained a mortgage from a financing company owned by or affiliated with a large homebuilder (see figure 1).1 Eighty percent of these loans were made by financing companies associated with one of the ten largest homebuilders in the country.2 In addition to accounting for a large share of new home sales and financing, homebuilders were particularly active in areas of the country where the subprime crisis was most acute (Arizona, California, Florida, and Nevada). As well as being important simply because of the number of loans that they underwrite, homebuilder financing arms are interesting because their incentives differ from those of unaffiliated lenders.3 Press accounts of homebuilder lending practices have focused on their incentive to sell homes and their purported willingness to extend unconventional mortgage products to borrowers with less-than-stellar credit histories.4 These factors have led to accusations that homebuilders contributed to the formation of the housing bubble and the ensuing foreclosure crisis. However, despite playing a potentially important role in explaining house price trends and mortgage defaults, homebuilder mortgage lending has received little research attention to date.

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