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My first essay “Homeownership Achievement of Second Generation Immigrants Accounting for Social Network Effects” is the first one to study the homeownership of second generation immigrants. Using the National Longitudinal Survey of Youth 1979, my paper identifies a lower propensity to own a house for native born individuals with immigrant parents compared with native-born individuals with native-born parents. I find that a metric to account for ethnic social networks (using the geographic clustering of Hispanics) can help explain the homeownership rate difference between these two groups. My estimation results show that networks of Hispanic homeowners increase the likelihood of homeownership for a Hispanic household, and the network effect is even larger for second generation Hispanics. This result suggests that the effect of knowledge spillover on homeownership decision results not only from the concentration of Spanish speakers, but also through other channels such as social activities which are rarely discussed in the literature.

The interaction of a household’s level of wealth and the down payment constraint has also been found to be among the most important influences on households’ homeownership decisions. The second essay “The Choice of Mortgage Down Payment Assistance and its Effect on Mortgage Outcomes” focuses on how households select into different mortgage down payment assistance programs (DPAs), and how this selection affects future loan performances. My study uses monthly panel data of the Ohio Housing Finance Agency’s (OHFA) Mortgage Revenue Bond (MRB) first- time home buyer program. Two forms of DPAs are available in this program. I explain how borrowers select into DPAs by using a two-step algorithm for dynamic games first proposed in Bajari, Benkard and Levin (2007). I first use a polychotomous choice model of DPA, and a survival model of the probability of default to generate hypothetical borrower choices. I then use the simulated data to recover parameters of a dynamic model of loan default, so that I can model borrowers’ choice of DPAs based on their expectations about future interest rates, house prices and income, and I then predict subsequent loan performances. Households that expect future income to increase should prefer assistance in order to smooth consumption, but the resulting higher monthly payment could lead to a higher risk of future delinquency and default. I am also able to examine whether borrowers selecting into DPAs are less risk averse, which leads to a higher probability of default. The policy question is how to improve loan performance, specifically, whether a new credit score requirement imposed in the end of 2009 will reduce future delinquency and default.

The third essay “The Neighborhood Effect of Loan Applications and Down Payment Assistance Usage” focuses on how neighbors’ decisions to obtain an OHFA MRB loan affect both households’ home mortgage loan applications and the usage of down payment assistance. Existing literature finds that borrowers with limited information about the mortgage market are more likely to select a subprime mortgage loan. By combining MRB loan data with Home Mortgage Disclosure Act data on mortgage applications, I test whether neighbors usage of MRB loans increase a household’s probability of receiving a MRB loan, and whether neighbors usage of DPA increases a household’s likelihood of using a DPA. Additionally, I control for lender influences on MRB loan and DPA usage, and compare it to neighbors’ influences. This study sheds light on two information channels of governmental loan programs: neighborhood knowledge spillovers and lender provided information. It also compares the relative importance of each channel, and thus could be used to explain why the government should provide easily accessible information to target areas.