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Is the FHA Creating Sustainable Homeownership?

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  • Andrew Caplin
  • Anna Cororaton
  • Joseph Tracy

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.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18190.

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Date of creation: Jun 2012
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Handle: RePEc:nbr:nberwo:18190

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References

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  1. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-82, July.
  2. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2008. "Housing busts and household mobility," Staff Reports 350, Federal Reserve Bank of New York.
  3. Foote, Christopher L. & Gerardi, Kristopher & Willen, Paul S., 2008. "Negative equity and foreclosure: Theory and evidence," Journal of Urban Economics, Elsevier, vol. 64(2), pages 234-245, September.
  4. Fernando Ferreira & Joseph Gyourko & Joseph Tracy, 2011. "Housing busts and household mobility: an update," Staff Reports 526, Federal Reserve Bank of New York.
  5. Caplin, Andrew & Freeman, Charles & Tracy, Joseph, 1997. "Collateral Damage: Refinancing Constraints and Regional Recessions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 496-516, November.
  6. Deng, Yongheng & Gabriel, Stuart, 2006. "Risk-Based Pricing and the Enhancement of Mortgage Credit Availability among Underserved and Higher Credit-Risk Populations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(6), pages 1431-1460, September.
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Cited by:
  1. Donghoon Lee & Christopher Mayer & Joseph Tracy, 2012. "A new look at second liens," Staff Reports 569, Federal Reserve Bank of New York.
    • Donghoon Lee & Christopher Mayer & Joseph Tracy, 2012. "A New Look at Second Liens," NBER Chapters, in: Housing and the Financial Crisis, pages 205-234 National Bureau of Economic Research, Inc.
  2. Patricia C. Mosser & Joseph Tracy & Joshua Wright, 2013. "The capital structure and governance of a mortgage securitization utility," Staff Reports 644, Federal Reserve Bank of New York.
  3. Joseph Gyourko & Joseph Tracy, 2013. "Unemloyment and Unobserved Credit Risk in the FHA Single Family Mortgage Insurance Fund," NBER Working Papers 18880, National Bureau of Economic Research, Inc.
  4. Gyourko, Joseph & Tracy, Joseph, 2014. "Reconciling theory and empirics on the role of unemployment in mortgage default," Journal of Urban Economics, Elsevier, vol. 80(C), pages 87-96.

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