ON THE DISTRIBUTIONAL IMPLICATIONS OF MORTGAGE REVENUE BONDS AND CREATIVE FINANCE

Abstract

The presumed benefits of below-market mortgage financing have been used to justify tax-exempt mortgage revenue bond financing and other government policies. This paper analyzes the extent to which the benefits of below-market mortgage finance are reflected in variations in housing prices. The analysis considers direct seller-to-buyer financing, mortgage "blends" and local government mortgage revenue bond financing. The empirical results suggest that, at least in the particular market analyzed, buyers gained a great deal through loan assumptions and seller financing. The results also indicate that mortgage revenue bond financing is capitalized, suggesting that the value of this tax-subsidy program to targeted first-time home buyers is even lower than previously expected.