A Disaggregated Model of the Residential Mortgage Market

Abstract

The purpose of this paper is to develop a model of the residential mortgage market, with primary emphasis on the differences between the home and multifamily mortgage markets. In studies of the housing market it has been found advantageous to disaggregate single-family and multifamily housing [7; 17]. We believe that this is also true for the residential mortgage market.' The advantages of disaggregation are most obvious on the demand for mortgage funds side. In specifying equations for the demand for home mortgage funds and the demand for multifamily mortgage funds we shall emphasize the underlying demand for housing by the mortgagor. The demand for single-family housing (primarily owner-occupied) is believed to be principally a consumption decision-the demand for housing services. The demand for multifamily housing is believed to be an investment decision. As a result of the disparate motives for the underlying demand for housing by the mortgagors, the specifications of the equations for the demand for home mortgage funds and the demand for multifamily mortgage funds are substantially different. Loans on single-family and multifamily housing are not equivalent for suppliers of mortgage funds. Fisher [4] discusses the differences between these two types of loans for mortgagees. He emphasizes the average size, the source of funds for periodic payment on interest and principal, and the liquidity of the two type of loans, and the salability of the collateral.