The institutional dominance hypothesis re-examined: a case study of the Houston residential mortgage market



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The objective of this study was to investigate the behavioral pattern of the various mortgage lending institutions in the Houston, Texas Metropolitan area insofar as such behavior affects the allocation of the available quantity of residential mortgage credit among conventional, FHA-insured, and VA-guaranteed types of mortgages, and among the various price classes of mortgages as can be determined from their average transaction values. The applicability of the Gillies-Curtis institutional dominance hypothesis was examined in order to ascertain if, and to what extent, the behavior of the various institutional groups was influenced by the activities of the dominant institutional group (mortgage companies). The evidence from the Houston market did not support the applicability of the Gillies-Curtis institutional dominance hypothesis, except in the case of federally-guaranteed mortgages. Even in the guaranteed submarket, the influence of the dominant institutional group was not uniform on other institutional groups. The existence of a high degree of "product differentiation" as demonstrated by a very low degree of overlap in the average transaction values of the mortgages originated by the different institutional groups indicates the need for the inclusion of this important variable in an extended operational definition of the Gillies-Curtis hypothesis. Other alternative approaches to the study of institutional behavior within local mortgage markets are also suggested.