Is the FHA Creating Sustainable Homeownership?

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.