Is the FHA Creating Sustainable Homeownership?

40 Pages Posted: 12 Jul 2012 Last revised: 15 Mar 2021

See all articles by Andrew Caplin

Andrew Caplin

New York University (NYU) - Department of Economics; National Bureau of Economic Research (NBER)

Anna Cororaton

Southern Methodist University (SMU) - Finance Department

Joseph S. Tracy

National Bureau of Economic Research (NBER); Federal Reserve Bank of Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: June 2012

Abstract

We produce first results on the sustainability of homeownership for recent (2007-2009) FHA-insured borrowers. More than 15 percent of these borrowers have already been 90 days or more delinquent, while less than 7 percent have completed their graduation to sustainable homeownership by finally paying off all FHA mortgages. We project that the proportion who have been 90 days or more delinquent will rise above 30 percent within five years, while fewer than 15 percent will have completed their graduation to sustainable homeownership. We show that the FHA uses an outmoded econometric model that leads it to underestimate delinquency risk to borrowers and financial risks to taxpayers. Fannie Mae and Freddie Mac use this same outmoded model. More accurate estimates would serve the cause of transparency and help policy-makers to determine these organizations' appropriate roles in the U.S. housing finance markets of the future.

Suggested Citation

Caplin, Andrew and Cororaton, Anna and Tracy, Joseph, Is the FHA Creating Sustainable Homeownership? (June 2012). NBER Working Paper No. w18190, Available at SSRN: https://ssrn.com/abstract=2103992

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National Bureau of Economic Research (NBER)

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Anna Cororaton

Southern Methodist University (SMU) - Finance Department ( email )

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Joseph Tracy

National Bureau of Economic Research (NBER) ( email )

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Federal Reserve Bank of Dallas ( email )

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