Abstract:
During the spring of 1987, a Kentucky Housing Corporation committee appointed by Executive Director Lynn Luallen met regularly to discuss whether the corporation should itself get into the mortgage insurance business. In the past, the corporation's single-family homeownership program had depended upon the Federal Housing Administration or private mortgage insurers for the insurance needed to sell its subsidized loans in the secondary mortgage market. But these sources had lately become both more expensive and more restrictive in their underwriting practices. But, if the corporation were to become an insurer, it would be faced with a dilemma. Should its underwriters act like conservative bankers by denying loans to high-risk applicants, thereby protecting the program's bond ratings? Or should they take a more risky underwriting stance, thereby allowing more of the state's residents to become homeowners? The case follows Luallen's and the committee's discussions as they thrash out the financial and political advantages and disadvantages of self-insurance.
Learning Objective:
This case addresses the financial aid and policy implications of an agency's decision to define a new role for itself.
