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Long-term outcomes of FHA first-time homebuyers

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Abstract

The Federal Housing Administration (FHA), which insures mortgages for low- to moderate-income homebuyers, has stated that its goal is to foster sustainable homeownership. This study proposes metrics for evaluating the degree to which the FHA has succeeded in this mission for an important program constituency, first-time homebuyers. The approach uses data from the New York Fed?s Consumer Credit Panel, a data source that makes it possible to observe new mortgage borrowers? long-term outcomes. The findings presented in sample scorecards show, for example, that in the 2001 and 2002 cohorts, 55 percent achieved ?sustainability,? paying off their FHA first-time mortgages and remaining homeowners without the need for a subsequent FHA mortgage. Roughly 12 percent failed, seeing their homeownership experiences end in default. The remainder reached less clear outcomes, with 12 percent paying off their FHA loans but transitioning back to rental homes, 10-12 percent continuing on with their original loans while building more home equity, and 8-10 percent purchasing a trade-up home, relying once more on an FHA loan.

Suggested Citation

  • Donghoon Lee & Joseph Tracy, 2018. "Long-term outcomes of FHA first-time homebuyers," Economic Policy Review, Federal Reserve Bank of New York, issue 24-3, pages 145-165.
    • Handle: RePEc:fip:fednep:00059
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    References listed on IDEAS

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    1. Tracy, Joseph & Wright, Joshua, 2016. "Payment changes and default risk: The impact of refinancing on expected credit losses," Journal of Urban Economics, Elsevier, vol. 93(C), pages 60-70.
    2. Kerry D. Vandell, 1995. "FHA Restructuring Proposals: Alternatives and Implications," Wisconsin-Madison CULER working papers 95-09, University of Wisconsin Center for Urban Land Economic Research.
    3. David C. Wheelock, 2008. "Government response to home mortgage distress: lessons from the Great Depression," Working Papers 2008-038, Federal Reserve Bank of St. Louis.
    4. Andreas Fuster & Paul S. Willen, 2017. "Payment Size, Negative Equity, and Mortgage Default," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 167-191, November.
    5. Ernest M. Fisher, 1951. "Urban Real Estate Markets: Characteristics and Financing," NBER Books, National Bureau of Economic Research, Inc, number fish51-1.
    6. Jonathan D. Rose, 2011. "The Incredible HOLC? Mortgage Relief during the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(6), pages 1073-1107, September.
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    Cited by:

    1. W. Scott Frame & Joseph Tracy, 2018. "Introduction to Special Issue: The Appropriate Role of Government in U.S. Mortgage Markets," Economic Policy Review, Federal Reserve Bank of New York, issue 24-3, pages 1-10.
    2. Kevin A. Park & Liyi Liu & Robert Avery & Lawrence Costa, 2024. "Measuring Homeownership Sustainability for First-Time Homebuyers," FHFA Staff Working Papers 24-02, Federal Housing Finance Agency.

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    More about this item

    Keywords

    first-time home buyers; FHA mortgages; Federal Housing Administration;
    All these keywords.

    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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