Long-Term Outcomes of FHA First-Time Homebuyers

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.