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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.

Suggested Citation

  • Andrew Caplin & Anna Cororaton & Joseph Tracy, 2012. "Is the FHA Creating Sustainable Homeownership?," NBER Working Papers 18190, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:18190
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    References listed on IDEAS

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    6. 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.
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    8. Meyer, Bruce D, 1990. "Unemployment Insurance and Unemployment Spells," Econometrica, Econometric Society, vol. 58(4), pages 757-782, July.
    9. repec:aei:rpaper:32621 is not listed on IDEAS
    10. 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.
    11. 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.
    12. 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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    Cited by:

    1. 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.
    2. 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.
    3. 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.
    4. Serafin J. Grundl & You Suk Kim, 2019. "The Marginal Effect of Government Mortgage Guarantees on Homeownership," Finance and Economics Discussion Series 2019-027, Board of Governors of the Federal Reserve System (U.S.).
    5. Francesca Castelli & Damien Moore & Gabriel Ehrlich & Jeffrey Perry, 2014. "Modeling the Budgetary Costs of FHA's Single Family Mortgage Insurance: Working Paper 2014-05," Working Papers 45711, Congressional Budget Office.
    6. Caplin, Andrew, 2014. "Rational inattention and revealed preference: The data-theoretic approach to economic modeling," Research in Economics, Elsevier, vol. 68(4), pages 295-305.
    7. W. Scott Frame, 2015. "Introduction to Special Issue: Government Involvement in Residential Mortgage Markets," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 43(4), pages 807-819, November.
    8. 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.

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    More about this item

    JEL classification:

    • H81 - Public Economics - - Miscellaneous Issues - - - Governmental Loans; Loan Guarantees; Credits; Grants; Bailouts

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