Benchmarking a New Affordable Home Mortgage

Abstract

Expanding sustainable homeownership opportunities for lower-income households has long been a housing policy goal. In this paper, we benchmark performance of HomeReady®, a new product targeted at such households, against other low-down payment loan types. Results show that HomeReady® loans have lower relative odds of 90-day delinquency or prepayment compared to FHA or VA loans, and similar performance to HFA loans. Robustness tests focusing on lower income borrowers, lender specialization, and loans to borrowers on the margin between FHA and HomeReady® in terms of pricing yield similar results. Together, these findings suggest that well-designed conventional products to address low- and moderate-income household needs can promote sustainable homeownership.

Keywords: sustainable homeownership, mortgages, low-to-moderate income homebuyers

JEL Classification: R21, R31, G21