Mortgage Financing
Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance Gao ID: GAO-06-24 November 9, 2005The Federal Housing Administration (FHA) permits borrowers to obtain down payment assistance from third parties; but, research has raised concerns about the performance of loans with such assistance. Due to these concerns, GAO examined the (1) trends in the use of down payment assistance with FHA-insured loans, (2) the impact that the presence of such assistance has on purchase transactions and house prices, (3) how such assistance influences the performance of these loans, and (4) FHA's standards and controls for these loans.
Almost half of all single-family home purchase mortgages that FHA insured in fiscal year 2004 had down payment assistance. Nonprofit organizations that received at least part of their funding from sellers provided assistance for about 30 percent of these loans and represent a growing source of down payment assistance. However, assistance from seller-funded nonprofits alters the structure of the purchase transaction. First, because many seller-funded nonprofits require property sellers to make a payment to their organization; assistance from these nonprofits creates an indirect funding stream from property sellers to homebuyers. Second, GAO analysis indicated that FHA-insured homes bought with seller-funded nonprofit assistance were appraised at and sold for about 2 to 3 percent more than comparable homes bought without such assistance. Regardless of the source of assistance and holding other variables constant, GAO analysis indicated that FHA-insured loans with down payment assistance have higher delinquency and claim rates than do similar loans without such assistance. Furthermore, loans with assistance from seller-funded nonprofits do not perform as well as loans with assistance from other sources. This difference may be explained, in part, by the higher sales prices of comparable homes bought with seller-funded assistance. Although FHA has implemented some standards and controls on loans with down payment assistance, stricter standards and additional controls could help in managing the risks these loans pose. FHA standards permit assistance from seller-funded nonprofits; in contrast, mortgage industry participants restrict such assistance. Further, government guidelines call for routine identification of risks that could impede meeting program objectives; however, FHA has not conducted routine analysis of the performance of loans with down payment assistance.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-06-24, Mortgage Financing: Additional Action Needed to Manage Risks of FHA-Insured Loans with Down Payment Assistance
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Report to the Chairman, Subcommittee on Housing and Community
Opportunity, Committee on Financial Services, House of Representatives:
November 2005:
Mortgage Financing:
Additional Action Needed to Manage Risks of FHA-Insured Loans with Down
Payment Assistance:
GAO-06-24:
GAO Highlights:
Highlights of GAO-06-24, a report to the Chairman, Subcommittee on
Housing and Community Opportunity, Committee on Financial Services,
House of Representatives.
Why GAO Did This Study:
The Federal Housing Administration (FHA) permits borrowers to obtain
down payment assistance from third parties; but, research has raised
concerns about the performance of loans with such assistance. Due to
these concerns, GAO examined the (1) trends in the use of down payment
assistance with FHA-insured loans, (2) the impact that the presence of
such assistance has on purchase transactions and house prices, (3) how
such assistance influences the performance of these loans, and (4)
FHA‘s standards and controls for these loans.
What GAO Found:
Almost half of all single-family home purchase mortgages that FHA
insured in fiscal year 2004 had down payment assistance. Nonprofit
organizations that received at least part of their funding from sellers
provided assistance for about 30 percent of these loans and represent a
growing source of down payment assistance. However, assistance from
seller-funded nonprofits alters the structure of the purchase
transaction. First, because many seller-funded nonprofits require
property sellers to make a payment to their organization; assistance
from these nonprofits creates an indirect funding stream from property
sellers to homebuyers. Second, GAO analysis indicated that FHA-insured
homes bought with seller-funded nonprofit assistance were appraised at
and sold for about 2 to 3 percent more than comparable homes bought
without such assistance.
Regardless of the source of assistance and holding other variables
constant, GAO analysis indicated that FHA-insured loans with down
payment assistance have higher delinquency and claim rates than do
similar loans without such assistance. Furthermore, loans with
assistance from seller-funded nonprofits do not perform as well as
loans with assistance from other sources. This difference may be
explained, in part, by the higher sales prices of comparable homes
bought with seller-funded assistance.
Although FHA has implemented some standards and controls on loans with
down payment assistance, stricter standards and additional controls
could help in managing the risks these loans pose. FHA standards permit
assistance from seller-funded nonprofits; in contrast, mortgage
industry participants restrict such assistance. Further, government
guidelines call for routine identification of risks that could impede
meeting program objectives; however, FHA has not conducted routine
analysis of the performance of loans with down payment assistance.
What GAO Recommends:
The Secretary of Housing and Urban Development should direct the FHA
Commissioner to implement additional controls to manage the risks
associated with loans that involve down payment assistance. Such
controls could involve considering the presence and source of down
payment assistance when underwriting loans. Further, the FHA
Commissioner should consider additional controls for loans with down
payment assistance from seller-funded nonprofits. In written comments,
HUD generally agreed with the report‘s findings. HUD also commented on
certain aspects of selected recommendations.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William B. Shear at (202)
512-8678 or shearw@gao.gov
[End of section]
Contents:
Letter:
Results in Brief:
Background:
The Percentage of Purchase Loans in FHA's Portfolio with Down Payment
Assistance Has Been Increasing Since 2001:
Seller-Funded Assistance Affects Home Purchase Transactions and Can
Raise House Prices:
FHA-Insured Loans with Down Payment Assistance, particularly from
Seller-Funded Nonprofits, Do Not Perform as Well as Similar Loans
without Assistance:
Stricter Standards and Additional Controls Could Help FHA Manage the
Risks Posed by Loans with Down Payment Assistance:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Automated Valuation Model Analysis:
Appendix III: Loan Performance Analysis:
Appendix IV: Comments from the Department of Housing and Urban
Development:
Appendix V: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, National Sample, Fiscal Years 2000,
2001, and 2002:
Table 2: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, MSA Sample, Fiscal Years 2000, 2001,
and 2002:
Table 3: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, Atlanta MSA Sample, Fiscal Years
2000, 2001, and 2002:
Table 4: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, National Sample, March 2005:
Table 5: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, National Sample, Fiscal
Years 2000, 2001, and 2002:
Table 6: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, MSA Sample, Fiscal Years
2000, 2001, and 2002:
Table 7: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, Atlanta MSA Sample, Fiscal
Years 2000, 2001, and 2002:
Table 8: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, National Sample, March
2005:
Table 9: Names and Definitions of the Variables Used in Our Regression
Models:
Table 10: Delinquency Regression Results--National Sample, Model Based
on Augmented TOTAL Mortgage Scorecard Variables:
Table 11: Delinquency Regression Results--National Sample, Model Based
on TOTAL Mortgage Scorecard Variables:
Table 12: Delinquency Regression Results--National Sample, Augmented
GAO Actuarial Model:
Table 13: Delinquency Regression Results--National Sample, GAO
Actuarial Model:
Table 14: Delinquency Regression Results--MSA Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Table 15: Delinquency Regression Results--MSA Sample, Model Based on
TOTAL Mortgage Scorecard Variables:
Table 16: Delinquency Regression Results--MSA Sample, Augmented GAO
Actuarial Model:
Table 17: Delinquency Regression Results--MSA Sample, GAO Actuarial
Model:
Table 18: Claim regression results - National Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Table 19: Claim Regression Results--National Sample, Model Based on
TOTAL Mortgage Scorecard Variables:
Table 20: Claim Regression Results--National Sample, Augmented GAO
Actuarial Model:
Table 21: Claim Regression Results--National Sample, GAO Actuarial
Model:
Table 22: Claim Regression Results--MSA Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Table 23: Claim Regression Results--MSA Sample, Model Based on TOTAL
Mortgage Scorecard Variables:
Table 24: Claim Regression Results--MSA Sample, Augmented GAO Actuarial
Model:
Table 25: Claim Regression Results--MSA Sample, GAO Actuarial Model:
Table 26: Prepayment Regression Results--Quarterly Conditional
Probability of Prepayment, National Sample:
Table 27: Prepayment Regression Results--Quarterly Conditional
Probability of Prepayment, MSA Sample:
Table 28: Loss Regression Results--Loss Rate Given Default, National
Sample:
Table 29: Loss Regression Results--Loss Rate Given Default, MSA Sample:
Figures:
Figure 1: Number of FHA-Insured Single-Family Purchase Money Loans,
Fiscal Years 2000 through 2005:
Figure 2: Number of FHA-Insured Single-Family Purchase Money Loans and
Percentage of Loans with Down Payment Assistance, by Source (Loans with
LTV Ratio Greater Than 95 percent, Fiscal Years 2000-2005):
Figure 3: Percentage of FHA-Insured Single-Family Purchase Money Loans
Using Nonprofit Down Payment Assistance and House Price Appreciation
Rates, by State:
Figure 4: Structure of FHA Individual Purchase Transaction, with
Nonseller-Funded Down Payment Assistance and with Seller-Funded Down
Payment Assistance:
Figure 5: Generic Illustration of Addendum to the Sales Contract
Completed Prior to Closing that Facilitates Seller's Commitment to
Providing Financial Payment to the Nonprofit Organization after
Closing:
Figure 6: Example of LTV Ratio Calculations for FHA-Insured Loans, by
Source of Down Payment Funds:
Figure 7: Delinquency and Claim Rates, by Maximum Age of Loan and
Source of Down Payment Funds:
Figure 8: Effect of Down Payment Assistance on the Probability of
Delinquency and Claim, Controlling for Selected Variables:
Abbreviations:
ARM: adjustable rate mortgage:
AVM: Automated Valuation Model:
CHUMS: Computerized Homes Underwriting Management System:
FHA: Federal Housing Administration:
GSE: government-sponsored enterprises:
HAND: Homeownership Alliance of Nonprofit Downpayment Providers:
HUD: The U.S. Department of Housing and Urban Development:
IRS: Internal Revenue Service:
LTV: loan-to-value:
MSA: Metropolitan Statistical Area:
OIG: Office of Inspector General:
RHS: U.S. Department of Agriculture's Rural Housing Service:
TOTAL: Technology Open to Approved Lenders:
VA: Department of Veterans Affairs
Letter:
November 9, 2005:
The Honorable Bob Ney:
Chairman:
Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
Dear Mr. Chairman:
Mortgage insurance provided by the Federal Housing Administration (FHA)
of the U.S. Department of Housing and Urban Development (HUD) insures
billions of dollars in private home loans each year. One of FHA's
primary goals is to expand homeownership opportunities for first-time
homebuyers and other borrowers who would not otherwise qualify for
conventional mortgages on affordable terms. Homebuyers who receive FHA-
insured mortgages often have limited funds and, to meet the 3 percent
borrower investment FHA requires, may obtain down payment assistance
from a third party, including not only a relative but also a charitable
organization (nonprofit) that is funded by the property seller. A
purpose of a down payment is to create "instant equity" for the new
homeowner, and our work and others have shown that loans with greater
owner investment generally perform better.[Footnote 1] HUD's Office of
Inspector General (OIG) has raised concerns about the performance of
FHA-insured loans with down payment assistance from seller-funded
nonprofits.[Footnote 2] In light of these concerns, you asked us to
evaluate how FHA-insured home loans with down payment assistance
perform compared with loans that are originated without such
assistance. The insurance program is supported in part through
insurance premiums that FHA charges its borrowers, and FHA estimates
that the mortgage insurance fund operates at a profit. In response to
your request, this report examines (1) trends in the use of down
payment assistance in FHA-insured loans (e.g., volume and source), (2)
the impact that the presence of down payment assistance has on the
structure of the purchase transaction and the house price of FHA-
insured loans, (3) the effect of down payment assistance on the
performance of FHA-insured loans, and (4) the extent to which FHA
standards and controls for loans with down payment assistance are
consistent with government internal control guidelines and mortgage
industry practices.
To describe trends in the use of down payment assistance with FHA-
insured loans, we obtained loan-level data from HUD on single-family
purchase money mortgage loans.[Footnote 3] We analyzed the data by
source of assistance to determine trends in loan volume and the
proportion of loans with down payment assistance (including geographic
variations). To examine the structure of the purchase transaction for
loans with and without down payment assistance, we reviewed HUD policy
guidebooks and reports and interviewed real estate agents, lenders,
appraisers, and other key players involved in transactions with down
payment assistance. To examine how down payment assistance impacted the
house price of FHA-insured loans, we examined the sales prices of homes
by the use and source of down payment assistance using property value
estimates derived from an Automated Valuation Model (AVM).[Footnote 4]
To examine how down payment assistance influences the performance of
FHA-insured loans, we obtained from HUD a sample of single-family
purchase money loans endorsed in fiscal years 2000, 2001, and 2002 and
performance data on those loans (current as of June 30, 2005).[Footnote
5] To examine the extent to which FHA standards and controls for loans
with down payment assistance were consistent with government internal
control guidelines, we reviewed FHA regulations and guidelines for
loans with down payment assistance and compared these with certain
internal control standards.[Footnote 6] We also interviewed mortgage
industry participants about the controls they used to manage the risks
associated with affordable loan products that permit down payment
assistance and, as appropriate, compared their practices with FHA's. We
did not verify that these institutions did in fact use these controls.
We selected these entities because they offered products intended to
expand affordable homeownership opportunities in part by permitting
down payment assistance. Appendix I provides a full description of our
scope and methodology. We performed our audit work in Boston,
Massachusetts, and Washington, D.C., from January 2005 to September
2005 in accordance with generally accepted government auditing
standards.
Results in Brief:
The proportion of FHA-insured loans that are financed in part by down
payment assistance from various sources has increased substantially in
the last few years, while the overall number of loans that FHA insures
has fallen dramatically. Assistance from nonprofit organizations funded
by sellers has accounted for a growing percentage of that
assistance.[Footnote 7] From 2000 to 2004, the total proportion of FHA-
insured loans with down payment assistance grew from 35 to nearly 50
percent. Approximately 6 percent of FHA-insured loans in 2000 received
down payment assistance from seller-funded nonprofits, but by 2004
nonprofit assistance had grown to about 30 percent. Our analysis showed
that those states where the use of nonprofit down payment assistance,
primarily from seller-funded nonprofits, was higher than average tended
to have lower-than-average house price appreciation rates.
Down payment assistance provided by a seller-funded nonprofit can alter
the structure of the purchase transaction in important ways. First,
when a homebuyer receives assistance from a seller-funded nonprofit,
many nonprofits require the property sellers to make a payment to the
nonprofit that equals the amount of assistance the homebuyer receives
plus a service fee, after the closing. This requirement creates an
indirect funding stream from property sellers to homebuyers that does
not exist in other transactions, even those involving some other type
of down payment assistance. Second, mortgage industry participants
reported, and a HUD contractor study found, that property sellers who
provided down payment assistance through nonprofits often raised the
sales price of the homes involved in order to recover the required
payments that went to the organizations.[Footnote 8] Our AVM analyses
found that homes bought with seller-funded nonprofit assistance
appraised at and sold for higher prices than comparable homes bought
without assistance, resulting in larger loans for the same collateral
and higher effective loan-to-value (LTV) ratios.[Footnote 9]
Specifically, we found that homes with seller-funded down payment
assistance were appraised and sold for about 2 to 3 percent more than
comparable homes without such assistance. That is, homebuyers would
have less equity in the transaction than would otherwise be the case.
FHA requires lenders to inform appraisers of the presence and source of
down payment assistance but does not require that lenders identify
whether the down payment assistance provider receives funding from
property sellers. Without this information, appraisers cannot consider
the impact that such assistance could have on the purchase price of a
home and potentially on the appraiser's estimate of the home's market
value.
Loans with down payment assistance do not perform as well as loans
without down payment assistance; this may be explained, in part, by the
homebuyer having less equity in the transaction. Holding other
variables constant, our analysis indicated that FHA-insured loans with
down payment assistance had higher delinquency and claim rates than
similar loans without such assistance. These differences in performance
may be explained, in part, by the higher sales prices of comparable
homes bought with seller-funded down payment assistance.
FHA has implemented some standards and internal controls to manage the
risks associated with loans with down payment assistance, but stricter
standards and additional controls could help FHA better manage risks
posed by loans with down payment assistance while meeting its mission
of expanding homeownership opportunities. First, with regard to
standards, like other mortgage industry participants, FHA generally
applies the same underwriting standards to loans with down payment
assistance that it applies to loans without such assistance. One
important exception is that FHA, unlike others, does not limit the use
of down payment assistance from seller-funded nonprofits. Some mortgage
industry participants view down payment assistance from seller-funded
nonprofits as a seller inducement to the sale and, therefore, either
restrict or prohibit its use. FHA has not viewed such assistance as a
seller inducement and, therefore, does not subject this assistance to
the limits it otherwise places on contributions from sellers. Although
FHA, like others, applies the same underwriting standards to loans with
down payment assistance as it applies to loans without such assistance,
because FHA's portfolio is heavily weighted toward loans with down
payment assistance, stricter standards may be warranted for such loans.
Second, with regard to controls, FHA has taken steps to assess and
manage the risks associated with loans with down payment assistance,
but additional controls may be warranted. For example, FHA has
conducted ad hoc loan performance analyses of loans with down payment
assistance and contracted for two studies to assess the use of such
assistance with FHA-insured loans, but FHA has not routinely assessed
the impact that the widespread use of down payment assistance has had
on loan performance. Also, FHA has targeted monitoring of appraisers
that do a high volume of loans with down payment assistance, but FHA
has not targeted its monitoring of lenders that do a high volume of
loans with down payment assistance, even though FHA holds lenders, as
well as appraisers, accountable for ensuring a fair valuation of the
property it insures.
We make recommendations designed to better manage the risks of loans
with down payment assistance generally and more specifically from
seller-funded nonprofits. Overall, we recommend that in considering the
cost and benefit of its policy permitting down payment assistance, FHA
also consider risk mitigation techniques such as including down payment
assistance as a factor when underwriting loans or monitoring more
closely loans with such assistance. With regard to down payment
assistance providers that receive funding from property sellers, we
recommend that FHA take additional steps to mitigate the risk
associated with these loans. These controls include treating such
assistance as a seller contribution and, therefore, subject to existing
limits on seller contributions.
We provided a draft of this report to HUD, and the Assistant Secretary
for Housing--Federal Housing Commissioner provided written comments,
which are discussed later in this report and reprinted in appendix IV.
HUD generally agreed with the report's findings, stating that the
report confirmed its own analysis of loan performance and the findings
of an independent contractor hired by FHA to evaluate how seller-funded
down payment assistance programs operate. HUD also agreed to take steps
to better identify the source of down payment assistance, which would
permit it to better monitor the performance of these loans. HUD also
agreed to consider incorporating the presence and source of down
payment assistance when underwriting loans.
HUD also commented on certain aspects of selected recommendations.
First, although HUD agreed with the report's recommendation to perform
routine and targeted loan performance analyses of loans with down
payment assistance, it stated that FHA already monitors the performance
of these loans. We recognized in our report that FHA does perform ad
hoc analyses of loan performance, but because of the substantial number
of FHA loans that involve some form of down payment assistance, and the
risk of these loans, we continue to believe that FHA should more
routinely monitor the performance of these loans. Second, HUD disagreed
with our recommendation that it should revise its standards to treat
assistance from a seller-funded nonprofit organization as a seller
inducement to purchase, arguing, based on advice of HUD's Office of the
General Counsel, that if the gift of down payment assistance is made by
the nonprofit entity to the buyer before closing, while the seller's
contribution to the nonprofit entity occurs after the closing, then the
buyer has not received funds that can be traced to the seller's
contribution. We realize that FHA relies on this advice to authorize
sellers to do indirectly what they cannot do directly. Nevertheless,
because gifts of down payment assistance from seller-funded nonprofits
are ultimately funded by the sellers, they are like gifts of down
payment assistance made directly by sellers. We, therefore, continue to
believe that assistance from a seller-funded entity should be treated
as a seller inducement to purchase. Finally, while the draft report was
with the agency for comment, HUD's contractor completed the 2005 Annual
Actuarial Review. Consistent with our recommendation, the contractor
included the presence and source of down payment assistance as a factor
in estimating loan performance--finding that it is a very important
factor. However, in reviewing the contractor's methodology, we found
certain limitations may understate the impact that down payment
assistance has on estimates of loan performance. We, therefore,
modified our recommendation to address one of these weaknesses and to
emphasize the continuing need to consider the presence and source of
down payment assistance in future loan performance models.
Background:
Mortgage insurance, a commonly used credit enhancement, protects
lenders against losses in the event of default. Lenders usually require
mortgage insurance when a homebuyer has a down payment of less than 20
percent of the value of the home. FHA, the U.S. Department of Veterans
Affairs (VA), the U.S. Department of Agriculture's Rural Housing
Service (RHS), and private mortgage insurers provide this insurance. In
2003, lenders originated $3.8 trillion in single-family mortgage loans,
of which more than 60 percent were for refinancing. Of all the insured
loans originated in 2003, including refinancings, private companies
insured about 64 percent, FHA about 26 percent, VA about 10 percent,
and RHS a very small number.
One of FHA's primary goals is to expand homeownership opportunities for
first-time homebuyers and other borrowers who would not otherwise
qualify for conventional mortgages on affordable terms. As a result,
FHA plays a particularly large role in certain market segments,
including first-time and low-income homebuyers. During 2001 to 2003,
FHA insured about 3.7 million mortgages with a total value of about
$425 billion. FHA insures most of its single-family mortgages under its
Mutual Mortgage Insurance Fund (Fund), which is primarily funded with
borrowers' insurance premiums and proceeds from the sale of foreclosed
properties. FHA's mortgage insurance program is currently a negative
subsidy program--that is, the Fund is self-financed and FHA estimates
that it operates at a profit; however, the Fund is experiencing higher-
than-estimated claims. The economic value of the Fund that supports
FHA's guarantees depends on the relative size of cash outflows and
inflows over time. Cash flows out of the Fund from payments associated
with claims on defaulted loans and refunds of up-front premiums on
prepaid mortgages. To cover these outflows, FHA receives cash inflows
from borrowers' up-front and annual insurance premiums and net proceeds
from recoveries on defaulted loans. If the Fund were to be exhausted,
the U.S. Treasury would have to cover lenders' claims directly. We
reported that FHA submitted a $7 billion reestimate for the Fund's
credit subsidy and interest as of the end of 2003, primarily due to an
increase in estimated and actual claims over what FHA previously
estimated.[Footnote 10] Several recent events may help explain the
increase in claims, including changes to underwriting guidelines,
competition from the private sector, and an increase in down payment
assistance. A program assessment included with the 2006 President's
Budget noted that FHA's loan performance model is neither accurate nor
reliable because it consistently under predicts claims. Since 1990, the
National Housing Act has required an annual and independent actuarial
analysis of the economic net worth and soundness of the Fund.[Footnote
11]
FHA has been backing mortgages with low down payments for many years.
For example, almost 90 percent of FHA-insured mortgages originated in
2000 had an LTV ratio greater than 95 percent. LTV ratios are important
because of the direct relationship that exists between the amount of
equity borrowers have in their homes and the likelihood of default. The
higher the LTV ratio, the less cash borrowers will have invested in
their homes and the more likely it is that they may default on mortgage
obligations, especially during times of economic hardship.
The number of loans that FHA insures each year has fallen dramatically
since 2000 (fig. 1). This decline is likely due, in part, to greater
availability of low and no down payment products from the conventional
market. Specifically, in 1992 Congress authorized HUD to establish
housing goals for Fannie Mae and Freddie Mac that direct them to
contribute to the affordability and availability of housing for low-and
moderate-income families, underserved areas, and special affordable
housing for very low-income families.[Footnote 12] In the 1990s,
private mortgage insurers began insuring loans with low down payments;
concurrently, Fannie Mae and Freddie Mac began purchasing these loans.
More recently, the conventional market has introduced products such as
zero-down payment loans that have attracted homebuyers who might
otherwise have applied for an FHA-insured mortgage. Certain
conventional mortgage products also permit down payment assistance.
Figure 1: Number of FHA-Insured Single-Family Purchase Money Loans,
Fiscal Years 2000 through 2005:
[See PDF for image]
Note: Loans insured by FHA's 203(b) program, its main single-family
program, and its 234(c) condominium program. Small specialized
programs, such as 203(k) rehabilitation and 221(d) subsidized
mortgages, were not included.
[End of figure]
Homebuyers with FHA-insured loans need to make a 3 percent contribution
toward the purchase of the property. FHA, like many conventional
mortgage lenders, permits homebuyers to obtain these funds from certain
third-party sources and use the money for the down payment and closing
costs. Generally, mortgage industry participants accept as third-party
sources relatives, a borrower's employer, government agencies, and
charitable organizations (nonprofits).[Footnote 13]
Among nonprofits that provide down payment assistance, some receive
contributions from property sellers. When a homebuyer receives down
payment assistance from one of these organizations, the organization
requires the property seller to make a financial payment to their
organization. These nonprofits are commonly called "seller-funded" down
payment assistance providers. Examples of seller-funded nonprofits that
provide the most down payment assistance to homebuyers with FHA-insured
mortgages, include: Nehemiah Corporation of America; AmeriDream,
Incorporated; and The Buyers Fund, Incorporated. A 1998 memorandum from
HUD's Office of the General Counsel found that funds from a seller-
funded nonprofit were not in conflict with FHA's guidelines that
prohibit down payment assistance from sellers.[Footnote 14] In
contrast, some nonprofits do not require property sellers to make a
financial payment to their organization in return for providing down
payment assistance to a homebuyer. Examples of these nonprofits that
provide the most down payment assistance to homebuyers with FHA-insured
mortgages, include the Clay Foundation, Incorporated; and Family
Housing Resources, Incorporated. For a nonprofit to provide down
payment assistance to a homebuyer, regardless of its funding source,
FHA requires that the organization have a Taxpayer Identification
Number.[Footnote 15] FHA does not approve down payment assistance
programs administered by nonprofits; instead, lenders are responsible
for assuring that the gift to the homebuyer from a nonprofit meets FHA
requirements.
FHA relies on lenders to underwrite the loans and determine their
eligibility for FHA mortgage insurance. Lenders wanting to participate
in FHA's mortgage programs receive approval from HUD. As of August
2004, over 10,000 lending institutions had been approved. These lenders
review loan applications and assess applicants' creditworthiness and
ability to make payments. FHA relies on these lenders to ensure
compliance with FHA standards. Lenders often initiate the use of down
payment assistance from seller-funded down payment assistance
providers. Additionally, FHA and its lenders rely upon appraisers to
provide an independent and accurate valuation of properties. A primary
role of appraisals in the loan underwriting process is to provide
evidence that the collateral value of a property is sufficient to avoid
losses on a loan if the borrower is unable to repay the loan.
Legislation sets certain standards for FHA-insured loans. Currently,
depending on a property's appraised value and the average closing costs
within a state, the LTV limits range from 97.15 to 98.75
percent.[Footnote 16] However, because FHA allows financing of the up-
front insurance premium, borrowers can receive a mortgage with an
effective LTV ratio of close to 100 percent. FHA also has flexibility
in how it implements changes to an existing product. For example, the
HUD Secretary can change underwriting requirements for existing
products and has done this many times. Specific examples include a
decrease in items considered as borrower's debts and an expanded
definition of what can be included as borrower's effective income when
lenders calculate qualifying ratios. Additionally, HUD is supporting a
legislative proposal that would enable HUD to insure mortgages with no
down payment. Borrowers would also be able to finance certain closing
costs. FHA would charge borrowers premiums that would be higher than
those for FHA's regular 203(b) mortgage product. The program is
targeted to first-time homebuyers, and borrowers would be required to
participate in homebuyer counseling. According to HUD, a zero down
payment program would provide FHA with a better way to serve families
in need of down payment assistance. We previously recommended that
Congress and FHA consider a number of means to mitigate the risks that
a no down payment product and any other new single-family insurance
product may pose. Such means may include limiting the initial
availability of new products, requiring higher premiums, and requiring
stricter underwriting and enhanced monitoring. Such risk mitigation
techniques would help protect the Fund while allowing FHA time to learn
more about the performance of such loans.[Footnote 17]
The mortgage industry is increasingly using credit scoring, automated
underwriting, and mortgage scoring. Credit scoring models, which
estimate the credit risk of individuals', use statistical analyses that
identify the characteristics of borrowers who are most likely to make
loan payments and then create a weight or score for each
characteristic. Credit scores, also known as FICO scores because they
are generally based on software developed by Fair, Isaac and Company,
range from 300 to 850, with higher scores indicating a better credit
history. Automated underwriting is the process of collecting and
processing the data used in the underwriting process. During the 1990s,
private mortgage insurers, the GSEs, and larger financial institutions
developed automated underwriting systems, and by 2002 more than 60
percent of all mortgages were underwritten using these systems. This
percentage continues to rise.[Footnote 18] Mortgage scoring is a
technology-based tool that relies on the statistical analysis of
millions of previously originated mortgage loans to determine how key
attributes such as credit history, property characteristics, and
mortgage terms affect future loan performance. FHA has developed and
recently implemented a mortgage scoring tool, called the Technology
Open to Approved Lenders (TOTAL) Mortgage Scorecard, that can be used
in conjunction with existing automated underwriting systems.
We identified and reviewed three studies that evaluated the extent to
which the presence of down payment assistance impacts loan performance,
but these analyses have been limited in that they do not consider other
variables that may be important to delinquency and claim, such as
borrowers' credit scores and the period during which a loan is
observed. HUD's OIG conducted two studies looking at defaults on FHA-
insured loans with down payment assistance.[Footnote 19] In the first
study, the OIG found that the default rate for a sample of FHA-insured
loans with down payment assistance provided by Nehemiah, a seller-
funded nonprofit, was more than double that of loans that did not get
assistance from this nonprofit (4.64 percent and 2.11 percent,
respectively). The second more recent study found that the default rate
for the same sample of Nehemiah-assisted loans had quadrupled to 19.42
percent. Moreover, this default rate was double the default rate for
loans that did not get assistance from this nonprofit (9.7 percent).
The OIG's studies did not adjust for other variables that could
potentially explain these differences in loan performance, such as
differences in borrowers' credit scores or house price appreciation
after the loans were originated. In response to the OIG's findings, FHA
contracted for analysis of a sample of FHA-insured loans to identify
the presence and source of down payment assistance. A coalition of down
payment assistance nonprofits, Homeownership Alliance of Nonprofit
Downpayment Providers (HAND), released a study which found that
delinquency rates for loans with assistance from nonprofits were about
11 percent higher than for loans with gifts from relatives. HAND also
noted that the delinquency rates on loans with assistance from
nonprofits were about the same as the delinquency rates on loans
receiving other forms of assistance.[Footnote 20] The HAND study
adjusted for geographic distribution, but not for other factors, such
as borrowers' credit scores or the age of the loans. Because loans with
assistance from nonprofits were a small portion of FHA's portfolio
until 2000, most of the loans in this sample with assistance from
nonprofits would have had little time in which to experience a
delinquency, unlike other loans in the sample.
The Percentage of Purchase Loans in FHA's Portfolio with Down Payment
Assistance Has Been Increasing Since 2001:
As the number of home mortgages FHA insures each year has fallen, the
number of FHA-insured single-family purchase money loans with nonprofit
down payment assistance has not. As a result, the proportion of loans
with down payment assistance that FHA insures each year has increased
significantly. From 2000 to 2004, the total proportion of FHA-insured
single-family purchase money loans that had an LTV ratio greater than
95 percent and that also involved down payment assistance, from any
source, grew from 35 to nearly 50 percent (fig. 2).[Footnote 21]
Assistance from nonprofit organizations, about 93 percent of which were
funded by sellers, accounted for an increasing proportion of this
assistance. Approximately 6 percent of FHA-insured loans received down
payment assistance from nonprofit organizations in 2000, but, by 2004
this figure had grown to about 30 percent.[Footnote 22] Our analysis of
a sample of FHA-insured loans from 2000 to 2002 showed that the average
amount of down payment assistance, regardless of source, was about
$3,400 and that the amount of down payment assistance relative to sales
price was about 3 percent.[Footnote 23]
Figure 2: Number of FHA-Insured Single-Family Purchase Money Loans and
Percentage of Loans with Down Payment Assistance, by Source (Loans with
LTV Ratio Greater Than 95 percent, Fiscal Years 2000-2005):
[See PDF for image]
Note: Percentage of loans with down payment assistance by source for
2000, 2001, and 2002 are based on a representative sample of FHA-
insured purchase money loans with an LTV ratio greater than 95 percent.
Of the loans in the sample with nonprofit assistance, 93.5 percent had
seller-funded assistance, 1.8 percent had nonseller-funded assistance,
0.5 percent had assistance from a nonprofit with both seller-funded and
nonseller-funded programs, and 4.2 percent had assistance from
nonprofits with a status that we could not identify. For these years,
our category "nonprofit" includes only loans with assistance from
nonprofit organizations we could verify as requiring funds from sellers
as a condition of providing assistance. All other loans with nonprofit
assistance were included in the nonseller-funded (other sources) group.
Percentage of loans with down payment assistance by source for 2003
through April 2005 are based on the total universe of FHA-insured
purchase money loans with an LTV ratio greater than 95 percent. For
these years, our category "nonprofit" includes loans with assistance
from all nonprofit organizations. We reviewed the nonprofit assistance
provider for 95.2 percent of the loans with nonprofit assistance. Of
these loans, 93.5 percent had seller-funded assistance, 1.5 percent had
nonseller-funded assistance, 1.1 percent had assistance from a
nonprofit with both seller-funded and nonseller-funded programs, and
3.9 percent had assistance from nonprofits with a status that we could
not identify. We did not review nonprofit organizations that provided a
low volume of assistance.
[End of figure]
As figure 2 illustrates, the total number of FHA-insured loans
originated fell dramatically between 2001 and 2005. Realtors that we
spoke to from across the country told us that fewer homebuyers were
using FHA-insured mortgages, opting instead for conventional low and
zero down payment mortgage products and loans with secondary financing
that do not require private mortgage insurance. In addition, officials
from government agencies that provide down payment assistance noted
either a decrease in the use of FHA mortgage insurance, an increase in
the demand for conventional mortgages, or both.
Although the number of FHA-insured loans decreased markedly from 2001
to 2004, the number of FHA-insured loans with down payment assistance
did not. As a result, these loans constitute a growing share of FHA's
total portfolio. Growth in the number of seller-funded nonprofit
providers and the growing acceptance of this type of assistance have
contributed to the increase in the use of down payment assistance.
According to industry professionals, relatives have traditionally
provided such assistance, but in the last 10 years other sources have
emerged, including not only seller-funded nonprofit organizations, but
also government agencies and employers. The mortgage industry has
responded by developing practices to administer this type of
assistance, such as FHA's policies requiring gift letters and
documentation of the transfer of funds. Lenders also reported that
seller-funded down payment assistance providers, in particular, have
developed practices accepted by FHA and lenders. For example, seller-
funded programs have standardized gift letter and contract addendum
forms for documenting both the transfer of down payment assistance
funds to the homebuyer and the financial contribution from the property
seller to the nonprofit organization. As a result, for FHA-insured
loans, lenders are increasingly aware of and willing to accept down
payment assistance, including from seller-funded nonprofits.
States that have higher-than-average percentages of FHA-insured loans
with nonprofit down payment assistance, primarily from seller-funded
programs, tend to be states with lower-than-average house price
appreciation rates (fig. 3).[Footnote 24] From May 2004 to April 2005,
34.6 percent of all FHA-insured purchase money loans nationwide
involved down payment assistance from a nonprofit organization, and 15
states had percentages that were higher than this nationwide average.
Fourteen of these 15 states also had house price appreciation rates
that were below the median rate for all states. In addition, the eight
states with the lowest house appreciation rates in the nation all had
higher-than-average percentages of nonprofit down payment assistance.
Generally, states with high proportions of FHA-insured loans with
nonprofit down payment assistance were concentrated in the Southwest,
Southeast, and Midwest.
Figure 3: Percentage of FHA-Insured Single-Family Purchase Money Loans
Using Nonprofit Down Payment Assistance and House Price Appreciation
Rates, by State:
[See PDF for image]
[End of figure]
Some real estate agents we spoke with commented that in housing markets
with low house appreciation rates, sellers do not typically receive
multiple offers for their properties. As a result, they may turn to
seller-funded down payment assistance providers to attract and expand
the pool of potential homebuyers and facilitate purchase transactions
that can result in higher sales prices. In contrast, in real estate
markets with high house appreciation rates, such as San Francisco and
New York City, mortgage industry participants reported that they
generally see more assistance in the form of secondary financing
involving first and second mortgages. This assistance is often provided
by government agencies and nonprofit instrumentalities of government.
In addition, lenders and private mortgage insurers described housing
markets located on the coasts, and in urban areas in general as having
higher proportions of homebuyers utilizing down payment assistance in
the form of secondary financing.
Purchase transactions in which the seller was a builder had higher
usage of nonprofit down payment assistance than did other purchase
transactions. In our sample of loans endorsed in 2000, 2001, and 2002,
homes sold by builders were more than twice as likely to involve down
payment assistance from seller-funded nonprofits as homes sold by
nonbuilder property sellers. Specifically, of the home purchase
transactions involving nonbuilder property sellers, 8.3 percent had
seller-funded down payment assistance, compared with 19.3 percent of
transactions with homes sold by builders. Ninety-seven percent of the
loans originated by one lender that was affiliated with a builder
involved nonprofit down payment assistance.
Seller-Funded Assistance Affects Home Purchase Transactions and Can
Raise House Prices:
The presence of down payment assistance from seller-funded nonprofits
can alter the structure of purchase transactions and often results in
higher house prices. As we have seen, homebuyers may receive down
payment assistance from a variety of sources besides seller-funded
nonprofits, including relatives and various government and nonprofit
homebuyer assistance programs. When buyers receive assistance from
sources other than seller-funded nonprofits, the home purchase takes
place like any other purchase transaction--buyers use the funds to pay
part of the house price, the closing costs, or both, reducing the
mortgage by the amount they pay and creating "instant equity." However,
seller-funded down payment assistance programs typically require
property sellers to make a financial contribution and pay a service fee
after the closing, creating an indirect funding stream from property
sellers to homebuyers that does not exist in a typical transaction.
Further, our analysis indicated and mortgage industry participants we
spoke with reported that property sellers often raised the sales price
of their properties in order to recover the contribution to the seller-
funded nonprofit that provided the down payment assistance. In these
cases, homebuyers may have mortgages that were higher than the true
market value price of the house and would have acquired no equity
through the transaction.
Seller-Funded Down Payment Assistance Changes the Structure of the
Purchase Transaction:
FHA guidelines state that providers of down payment assistance may not
have an interest in the sale of the property, noting that assistance
from sellers, real estate agents, builders, and associated entities are
considered an inducement to buy.[Footnote 25] FHA guidelines do allow
sellers to contribute up to 6 percent of the sales price toward closing
costs, although none of this money can be used to meet the 3 percent
borrower contribution requirement.[Footnote 26] Contributions from
sellers exceeding 6 percent of the sales price or exceeding the actual
closing costs result in a dollar-for-dollar reduction to the sales
price when calculating the loan's LTV ratio. In spite of these FHA
requirements, FHA lists among acceptable providers not only relatives,
a borrower's employer, and homeownership programs but also charitable
organizations (nonprofits)--including those that are funded by
contributions from property sellers. Like down payment assistance from
all other sources, FHA does not limit the amount of assistance from
seller-funded nonprofits, and homebuyers can use this assistance for
the down payment and closing costs.
As a result, individuals and entities that HUD has described as having
an interest in the sale of a property may provide gift assistance to
homebuyers indirectly through these nonprofits, effectively
circumventing the 6 percent rule. The presence of this type of
assistance changes the way a property is purchased by creating an
indirect funding stream from the seller to the buyer (fig. 4). That is,
after the closing, these organizations commonly require property
sellers to provide both a financial payment equal to the amount of
assistance paid to the homeowner and a service fee. Before the sale of
the property, sellers that partner with these nonprofits often complete
an addendum to the sales contract that outlines, as a condition of the
sale, their commitment to providing a financial payment and fee after
closing (fig. 5).
Figure 4: Structure of FHA Individual Purchase Transaction, with
Nonseller-Funded Down Payment Assistance and with Seller-Funded Down
Payment Assistance:
[See PDF for image]
[End of figure]
Figure 5: Generic Illustration of Addendum to the Sales Contract
Completed Prior to Closing that Facilitates Seller's Commitment to
Providing Financial Payment to the Nonprofit Organization after
Closing:
[See PDF for image]
[End of figure]
Seller-Funded Down Payment Assistance Often Results in Higher Sales
Prices:
When a homebuyer receives down payment assistance from a seller-funded
nonprofit, property sellers often raise the sales price of the property
to recover the required payment to the nonprofit providing the
assistance. GAO analysis of a national sample of FHA-insured loans
endorsed in 2000, 2001, and 2002 suggests that homes with seller-funded
assistance were appraised and sold for about 3 percent more than
comparable homes without such assistance.[Footnote 27] Additionally,
our analysis of more recent loans, a sample of FHA-insured loans
settled in March 2005, indicates that homes sold with nonprofit
assistance were appraised and sold for about 2 percentage points more
than comparable homes without nonprofit assistance.[Footnote 28] To
examine the possibility that sales prices of homes with seller-funded
assistance were in fact higher than sales prices of comparable homes
without such assistance, we contracted with First American Real Estate
Solutions to provide estimates of the value of homes in a sample of FHA-
insured loans. The values were calculated for the month prior to the
closing, using an AVM. AVMs, which use statistical processes to
estimate the property values, using property characteristics and trends
in sales prices in the surrounding areas, are widely used in the
mortgage industry for quality control and other purposes. We examined
the ratio of the estimated AVM values to the appraisal values and sales
prices and found that the ratios for loans with seller-funded nonprofit
down payment assistance ranged from about 2 to 3 percentage points
lower than the ratios for loans without such assistance. In other
words, for loans with seller-funded down payment assistance, the
appraised value and sales price were higher as compared with loans
without such assistance. See appendix II for the details of our
analysis.
In addition, some mortgage industry participants told us that homes
purchased with down payment assistance from seller-funded nonprofits
may be appraised for higher values than if the same homes were
purchased without assistance. Appraisers we spoke with said that
lenders, realtors, and sellers sometimes pressured them to "bring in
the value" in order to complete the sale. Additionally, a prior HUD
contractor study corroborates the existence of these
pressures.[Footnote 29] FHA requires lenders to provide information to
appraisers about the source and amount of assistance. However, FHA
reporting requirements do not require lenders to inform appraisers
whether the source of the assistance is a seller-funded
nonprofit.[Footnote 30] HUD has issued several Mortgagee Letters that
provide clarifications regarding FHA standards and requirements for
loans with down payment assistance.[Footnote 31] For example, in
January 2005, HUD issued a Mortgagee Letter to clarify FHA's standards
requiring that appraisers be informed of the presence and source of
down payment assistance, regardless of its source.[Footnote 32] Also in
January 2005, HUD issued a Mortgagee Letter to reiterate that lenders
are required to ensure that appraisals comply with FHA
requirements.[Footnote 33] Lenders we spoke with reported that they
document the source of the assistance--a relative, nonprofit, and a
borrower's employer, for instance--but, typically do not inform
appraisers about the relationship between the seller and the down
payment assistance provider.
Marketing materials from seller-funded nonprofits often emphasize that
property sellers using these down payment assistance programs earn a
higher net profit than property sellers who do not. These materials
show sellers receiving a higher sales price, that more than compensates
for the fee typically paid to the down payment assistance provider. For
homebuyers who receive assistance from seller-funded nonprofits, the
higher sales prices result in mortgages that are higher than mortgages
made using other types of down payment assistance, such as a gift from
a relative, or with no assistance at all.
Additionally, several mortgage industry participants we interviewed
noted that when homebuyers obtained down payment assistance from seller-
funded nonprofits, property sellers increased their sales prices to
recover their payments to the nonprofits providing the assistance.
Again, a prior HUD contractor study corroborates the existence of this
practice.[Footnote 34] A higher sales price results in a larger loan
for the same collateral and, therefore, a higher effective LTV ratio
(fig. 6).
Figure 6: Example of LTV Ratio Calculations for FHA-Insured Loans, by
Source of Down Payment Funds:
[See PDF for image]
[End of figure]
The higher sales price that often results from a transaction involving
seller-funded down payment assistance can have the perverse effect of
denying buyers any equity in their properties and creating higher
effective LTV ratios. As we have seen, FHA guidance stipulates that any
financial assistance provided by a party with an interest in the sale
of the property is limited to 6 percent of the sales price and can be
used only for closing costs. Contributions from interested parties,
such as sellers, that exceed 6 percent of the sales price or the actual
closing costs result in a dollar-for-dollar reduction to the sales
price when calculating the loan's LTV ratio. Along with the maximum
allowable LTV ratio, the effect of this requirement is to ensure that
FHA homebuyers obtain a certain amount of "instant equity" at closing.
That is, when the sales price represents the fair market value of the
house, and the homebuyer contributes 3 percent of the sales price at
the closing, the LTV ratio is less than 100 percent. But when a seller
raises the sales price of a property to accommodate a contribution to a
nonprofit that provides down payment assistance to the buyer, the
buyer's mortgage may represent 100 percent or more of the property's
true market value.
FHA-Insured Loans with Down Payment Assistance, particularly from
Seller-Funded Nonprofits, Do Not Perform as Well as Similar Loans
without Assistance:
Holding other variables constant, FHA-insured loans with down payment
assistance do not perform as well as similar loans without such
assistance. Furthermore, loans with down payment assistance from seller-
funded nonprofits do not perform as well as loans with assistance from
other sources. This difference in performance may be explained, in
part, by the higher sales prices of comparable homes bought with seller-
funded down payment assistance.
For our analyses, we used two samples (i.e., national and MSA) of FHA-
insured single-family purchase money loans endorsed in 2000, 2001, and
2002.[Footnote 35] We grouped the loans into the following three
categories:
* loans with assistance from seller-funded nonprofit organizations,
* loans with assistance from nonseller-funded sources, and:
* loans without assistance.[Footnote 36]
We analyzed loan performance by source of down payment assistance,
controlling for the maximum age of the loan. As shown in figure 7, in
both samples and in each year, loans with down payment assistance from
seller-funded nonprofit organizations had the highest rates of
delinquency and claims, and loans without assistance the lowest.
Specifically, between 22 and 28 percent of loans with seller-funded
assistance had experienced a 90-day delinquency, compared to 11 to 16
percent of loans with assistance from other sources and 8 to 12 percent
of loans without assistance. The claim rates for loans with seller-
funded assistance ranged from 6 to 18 percent, for loans with other
sources of assistance ranged from 5 to 10 percent, and for loans
without assistance from 3 to 6 percent.
Figure 7: Delinquency and Claim Rates, by Maximum Age of Loan and
Source of Down Payment Funds:
[See PDF for image]
Note: Analysis based on data from two samples of loans drawn for a file
review study funded by HUD and conducted by the Concentrance Consulting
Group. The sampled loans were purchase money loans endorsed in 2000,
2001, and 2002 with LTV ratios greater than 95 percent. The national
sample consisted of just over 5,000 loans, and the MSA sample consisted
of 1,000 loans for each of the three MSAs: Atlanta, Indianapolis, and
Salt Lake City.
[End of figure]
Even when other variables relevant to loan performance were held
constant, loans with down payment assistance and, in particular, seller-
funded assistance, had higher delinquency and claim rates. In order to
test whether other factors correlated with the receipt of seller-funded
assistance--for example, the concentration of these loans in slowly
appreciating areas--we used regression analyses that controlled for
this and other potentially relevant variables (see app. III for the
details of our analyses).[Footnote 37] As figure 8 illustrates, seller-
funded assistance was found to have a substantial impact on claim and
delinquency in both the national and MSA samples.
Specifically, the results from the national sample indicated that
assistance from a seller-funded nonprofit raised the probability that
the loan had gone to claim by 76 percent relative to similar loans with
no assistance. Differences in the MSA sample were even larger; the
probability that loans with seller-funded nonprofit assistance would go
to claim was 166 percent higher than it was for comparable loans
without assistance. Similarly, results from the national sample showed
that down payment assistance from a seller-funded nonprofit raised the
probability of delinquency by 93 percent compared with the probability
of delinquency in comparable loans without assistance. For the MSA
sample, this figure was 110 percent.[Footnote 38]
Loans with down payment assistance from nonseller-funded sources did
not perform as well as loans without assistance when other variables
relevant to loan performance were held constant. We found that this
type of down payment assistance had a substantial impact on the
probability of claim and delinquency in both the national and MSA
samples (see fig. 8). In the national sample, it raised the probability
of claim by 49 percent and the probability of delinquency by 21 percent
relative to similar loans with no down payment assistance.[Footnote 39]
In the MSA sample, it raised the probability of claim by 45 percent and
the probability of delinquency by 36 percent compared with loans
without assistance.[Footnote 40]
Figure 8: Effect of Down Payment Assistance on the Probability of
Delinquency and Claim, Controlling for Selected Variables:
[See PDF for image]
Note: Loans without down payment assistance are set at 100 percent. The
results show the effect of a change in the variable on the odds ratio-
-that is, the probability of a claim (or delinquency) divided by the
probability of not experiencing a claim (or delinquency). However, the
probability of experiencing a claim or delinquency in any given quarter
is fairly small; so, the change in the odds ratio is very close to the
change in the probability. The analysis is based on data from two
samples of loans drawn for a file review study funded by HUD and
conducted by the Concentrance Consulting Group. The loans in the
samples were endorsed in 2000, 2001, and 2002 and had LTV ratios
greater than 95 percent. The national sample consisted of just over
5,000 loans and the MSA sample consisted of 1,000 purchase money loans
for each of the three MSAs: Atlanta, Indianapolis, and Salt Lake City.
The loan performance data (current as of June 2005) are from HUD's
Single-Family Data Warehouse. For a detailed description of the
regression model and other data sources, see appendix III.
[End of figure]
The higher probability of claims in the MSA sample, as compared to the
national sample, may be attributable to higher house price appreciation
rates at the national level as compared to the MSAs. Research suggests
that delinquent borrowers who have accumulated equity in their
properties are more likely than other borrowers to prepay in order to
avoid claims.[Footnote 41] During the 5-year period from the first
quarter of 2000 to the last quarter of 2004, the median house price
increase in the national sample was about 39 percent. During the same
period, the Salt Lake City, Indianapolis, and Atlanta MSAs realized
increases in the median price of existing homes of 11 percent, 18
percent, and 32 percent, respectively. On average, then, borrowers in
the national sample could be expected to have accumulated more equity
than those in the MSAs and to be more likely to sell their homes and
prepay their mortgages if they faced delinquency. The effect of the
increased LTV ratio associated with loans with seller-funded down
payment assistance may be less important in the presence of substantial
accumulated equity.[Footnote 42]
The effect of seller-funded down payment assistance on loan performance
is substantial and to achieve an equivalent decline in loan performance
requires substantial changes in other factors. For example, the
presence of seller-funded down payment assistance increased claims by
76 percent. Adjusting other factors to increase claims by 76 percent
would require lowering a borrower's credit score about 60 points, for
example, or raising the payment to income ratio about 25 percentage
points. Both of these adjustments to a loan are significant.
We also examined differences in loss severities between loans with
seller-funded assistance and unassisted loans. Although our analysis
was tentative because many claims had not yet completed the property
disposition process, it suggested that the ultimate losses from loans
with seller-funded assistance were greater than other loans. We could
determine the net profit or loss for only 184 loans from the national
sample and for only 205 loans from the MSA sample. We used a regression
to predict the loss rate, or the dollar amount of loss (or profit, in a
few cases), divided by the original mortgage balances.[Footnote 43] The
loss rate for loans with seller-funded assistance was about 5
percentage points higher in both samples. The differences were not
statistically significant in the national sample but were in the MSA
sample. Our analysis of loss severities indicated no significant
differences in loss rates between unassisted loans and loans with
nonseller-funded assistance in the national sample. In the MSA sample,
loans with nonseller-funded assistance did have statistically
significantly higher loss rates.
The weaker performance of loans with seller-funded down payment
assistance may be explained, in part, by the higher sales prices of
homes when buyers receive such assistance, resulting in higher
effective LTV ratios. Prior GAO analysis has found that, controlling
for other factors, high LTV ratios lead to increased claims.[Footnote
44] Our analysis of AVM data in the national sample of loans endorsed
in 2000, 2001, and 2002 indicated that the sales prices of homes with
seller-funded down payment assistance were 3 percent higher than the
sales prices of comparable homes without it, leading to higher
effective LTV ratios for these loans. GAO analysis suggests that this 3
percent difference in sales price translates into a 16 percent increase
in claims. Claim rates for loans with seller-funded assistance in the
2000-2002 national sample were about 19 percent to 39 percent higher
than claim rates for loans with other forms of assistance--a difference
that may largely explain the difference in claim rates between seller-
funded and other forms of assistance.[Footnote 45]
Stricter Standards and Additional Controls Could Help FHA Manage the
Risks Posed by Loans with Down Payment Assistance:
FHA has implemented some standards and internal controls to manage the
risks associated with loans with down payment assistance, but stricter
standards and additional controls could help the agency better manage
the risks these loans pose. First, FHA applies the same standards to
loans with down payment assistance that it applies to all loans but is
less restrictive in the sources of down payment assistance it permits
than other mortgage industry participants. Government internal control
guidelines advise agencies to consider and recognize the value of
industry practices that may be applicable to agency
operations.[Footnote 46] Private mortgage insurers, Fannie Mae, and
Freddie Mac offer practices that could be instructive in this instance.
Mortgage industry participants told us that they viewed down payment
assistance from seller-funded nonprofits as an inducement and,
therefore, either restricted or prohibited its use. FHA does not share
this view and has not held this assistance to the same limits it places
on funds from sellers. Second, FHA has assessed, on an ad hoc basis,
the performance of loans with down payment assistance. In contrast,
government internal control guidelines recommend that agencies
routinely identify risks that could impede efficient and effective
management and develop approaches to analyze and manage risk. Finally,
although FHA has implemented targeted monitoring of appraisers that do
a high volume of loans with down payment assistance, the agency has not
implemented targeted monitoring of lenders that do a high volume of
loans with down payment assistance.
FHA Standards Permit Borrowers to Obtain Down Payment Assistance from
Seller-Funded Sources:
Government internal control guidelines do not prescribe standards
specifically for loans with down payment assistance but do advise
agencies to consider and recognize the value of industry practices that
may be applicable to agency operations. FHA practices related to down
payment assistance are in many ways comparable to industry practices.
The agency applies the same standards to loans with down payment
assistance as it does to other FHA-insured loans--for example, placing
a 6 percent cap on the amount of funds sellers can contribute to loan
transactions and requiring borrowers to meet the same underwriting
requirements as other borrowers. FHA does not consider the presence,
source, or amount of down payment assistance as a factor in its
underwriting guidelines; more specifically, FHA does not include down
payment assistance as a variable in its TOTAL Mortgage
Scorecard.[Footnote 47] Similarly, mortgage industry participants
reported not imposing additional underwriting criteria for loans with
down payment assistance.
FHA's standards regarding sources of down payment assistance differ
from those of key mortgage industry participants in one important
respect--while FHA permits down payment assistance from seller-funded
sources, mortgage industry participants restrict or prohibit such
assistance. FHA, like other mortgage industry participants, does not
permit homebuyers to obtain down payment assistance directly from
property sellers but does permit them to get it from nonprofits that
receive contributions from property sellers. Further, FHA does not
include down payment assistance from seller-funded nonprofits in the 6
percent limit that it has imposed on seller contributions. In contrast,
some mortgage industry participants we met with told us that they
viewed down payment assistance from seller-funded nonprofits as an
inducement and, therefore, either restricted or prohibited its use.
Although some mortgage industry participants do permit homebuyers to
use seller-funded nonprofits, these entities typically impose
restrictions on the amount of assistance a homebuyer may receive and
how the funds can be used. For example, Fannie Mae and Freddie Mac
permit homebuyers to obtain funds provided by seller-funded nonprofits
but only up to 3 percent of the sales price and only for closing costs.
FHA standards for other sources of down payment assistance are similar
to those of mortgage industry participants we spoke with. Specifically,
neither limits the amount of assistance a homebuyer may receive from
sources such as relatives, and this money can be used for the down
payment, as well as the closing costs. Also, as mentioned earlier, FHA
applies the same underwriting standards to loans with down payment
assistance as it applies to loans without such assistance.
Mortgage industry participants we spoke with cited three reasons for
restricting down payment assistance from seller-funded nonprofits.
First, some mortgage industry participants noted that seller-funded
nonprofits are not disinterested third parties because of the
contingency requiring contributions from sellers after the loan closes.
Second, some mortgage industry participants noted that homebuyers
receiving down payment assistance from seller-funded nonprofits often
finance larger loan amounts than they would otherwise because sellers
increase the sales price to compensate for the contribution. Third,
some mortgage industry participants noted that, in effect, seller-
funded nonprofits can be used as intermediaries to enable sellers to
contribute funds in excess of HUD's 6 percent limit on seller
contributions.
Additionally, another HUD program has more restrictive standards on
permitted sources of down payment assistance. The American Dream
Downpayment Initiative, a program administered by HUD's Office of
Community Planning and Development that provides grants for down
payment assistance programs, does not permit seller-funded nonprofits
to administer its funds.[Footnote 48] And, in 1999, HUD proposed a rule
that would prohibit borrowers from obtaining down payment assistance
from organizations that received funds from sellers. HUD stated that
this rule was "intended to prevent a seller from providing funds to an
organization as a quid pro quo for that organization's down payment
assistance for purchase of one or more homes from the seller."[Footnote
49] HUD later withdrew this rule after receiving 1,871 public comments
on the proposed rule; all but 21 opposed it.
HUD officials noted that HUD permits seller-funded down payment
assistance because the assistance does not compromise FHA guidance
prohibiting homebuyers from using funds from property sellers and other
interested parties toward a down payment. FHA considers seller
contributions to the homebuyer in excess of 6 percent of the sales
price and direct seller down payment assistance as inducements to
purchase that must be factored into the purchase transaction.[Footnote
50] These funds result in a dollar-for-dollar reduction to the sales
price before the LTV ratio is calculated. Further, FHA requires any
down payment assistance be essentially a gift that is not subject to
repayment. HUD officials stated that seller-funded nonprofits are not
sellers and do not require homebuyers to pay back the funds. In
addition, these officials noted that the seller and buyer--in a
transaction involving seller-funded down payment assistance--agree on
the sales price and pointed out that the contribution the nonprofit
receives from the seller after the closing supports future homebuyers.
For these reasons, we were told, HUD did not recognize a direct
relationship between the property seller and the homebuyer stemming
from the activities of the seller-funded nonprofit organization.
Although FHA applies many of the same standards to loans with down
payment assistance as it applies to other loans, it does impose
additional documentation requirements on loans with down payment
assistance. Lenders must obtain a "gift letter" that includes the
donor's name and contact information; an explanation of the donor's
relationship to the borrower; the dollar amount of the assistance; and
a statement that specifies that no repayment is required. They must
ensure that the down payment assistance meets FHA's requirements,
document the Taxpayer Identification Numbers for all nonprofits, and
provide evidence of the transfer of funds from the donor to the
borrower.[Footnote 51] As noted earlier, lenders must also tell
appraisers when a transaction involves down payment assistance and its
source, and appraisers must include this information in their reports.
However, FHA guidance does not require lenders to inform appraisers if
the source of the assistance is a seller-funded nonprofit.
FHA Does Not Conduct Routine Loan Performance Analyses on Loans with
Down Payment Assistance:
Government risk assessment guidelines recommend that agencies routinely
identify risks that could impede efficient and effective management and
develop approaches, either qualitative or quantitative, to analyze and
manage these risks. Additionally, some mortgage industry participants
reported that they did some quantitative loan performance analyses on
loans with down payment assistance in order to understand the risks
associated with these loans.
FHA has conducted some risk analysis on its loans with down payment
assistance. For example, FHA officials recently told us that they had
been analyzing the performance of loans with down payment assistance on
an ad hoc basis. FHA's Office of Evaluation has been conducting
analyses since February 2000, comparing the performance of loans with
down payment assistance with those made without assistance. For
example, from January through July 2005, FHA carried out four ad hoc
loan performance analyses of all FHA-insured loans. FHA's analyses
indicate that loans with down payment assistance do not perform as well
as loans without down payment assistance. However, according to FHA
officials FHA has not undertaken ongoing periodic loan performance
analyses that consider the presence and source of down payment
assistance.
HUD has also initiated two research efforts to evaluate down payment
assistance as it relates to FHA-insured loans and down payment
assistance. The first study evaluated the accuracy of loan-level data
maintained in HUD's information systems and collected information on
sources and amounts of gift assistance.[Footnote 52] The study included
a comparison of data found in key documents FHA maintained with the
information lenders had transmitted via the Computerized Homes
Underwriting Management System (CHUMS).[Footnote 53] This research
found that, for loans with down payment assistance, the gift amounts
and sources in HUD's information system were frequently missing or
different from the information in the documents. The study also found
that needed Taxpayer Identification Numbers were missing for 74 percent
of loans reviewed that involved assistance from nonprofit
organizations. As a result of the study, HUD clarified the data
requirements for loans with down payment assistance. For example, in
January 2005 HUD reiterated its requirement for lenders to provide
information on the presence, amount, and source of down payment
assistance.
The second study evaluated the influence of assistance from seller-
funded nonprofits on the origination of FHA-insured loans through
interviews with various mortgage industry participants.[Footnote 54]
This study found that seller-funded down payment assistance providers
serve primarily as conduits for the transfer of down payment funds
between buyers and sellers in order to meet HUD's gift eligibility
requirement. Additionally, the study found that many appraisers,
mortgage lenders, underwriters, seller-funded down payment assistance
providers, and real estate agents reported that homes sold with seller-
funded down payment assistance had inflated appraised values and
property sales prices. The second study resulted in a report issued in
March 2005 and included several recommendations to FHA. FHA is
currently assessing whether HUD should approach loans with down payment
assistance differently (e.g., apply an enhanced risk-based premium
structure on loans with down payment assistance from certain sources);
but as of September 2005 FHA had not taken any action.
FHA annually contracts for an actuarial review. A key component of this
review is an assessment of loan performance. These analyses of loan
performance--which also help in estimating program subsidy costs--
consider a number of factors including the loan's LTV ratio and
mortgage age. However, the presence and source of down payment
assistance were not included in these loan performance analyses prior
to the actuarial review for 2005.[Footnote 55] This actuarial review
indicates that down payment assistance has a significant impact on the
performance of these loans. Specifically, when the actuarial review
incorporated down payment assistance into the econometric model, the
estimated value of FHA's insurance fund for 2005 decreased by $1.8
billion. The actuarial review also stated that down payment assistance
"has had a major economic impact on the fund" and that these loans
should be closely monitored. However, the analysis in the actuarial
review may understate the magnitude of the effect of down payment
assistance on claim rates because the gift letter source variable used
in the actuarial review understates the number of loans with gift
assistance for loans endorsed between 2000 and 2002, according to HUD's
contractors. Additionally, the impact of down payment assistance may be
greater than found in the actuarial review. Specifically, the actuarial
review's estimates of loan performance are based on the historical
experience of loans made with down payment assistance, most of which
were originated between 2000 and 2005--a period marked by rapid house
price appreciation. However, because down payment assistance has a
greater impact in areas of low price appreciation, should the rate of
house price appreciation decline in the future, the effects of down
payment assistance may be greater. Further, the actuarial review does
not examine the impact that the presence and source of down payment
assistance may have on claim severity. As noted earlier, FHA recently
took action to clarify data reporting requirements regarding the source
and amount of down payment assistance, but these FHA reporting
requirements do not differentiate seller-funded nonprofits from
nonseller-funded types of nonprofits.[Footnote 56]
FHA's Monitoring of Down Payment Assistance Lending is Limited:
Government internal control guidelines advise agencies to monitor
external entities that perform critical functions, in part to ensure
that these entities are accountable for their operations. FHA relies on
numerous outside entities--including lenders and appraisers--to perform
critical functions, including functions specific to loans with down
payment assistance. As we have seen, lenders must ensure that
assistance provided by nonprofits organizations meets FHA requirements
and that the nonprofits have current Taxpayer Identification Numbers.
Furthermore, FHA and its lenders rely upon appraisers to provide an
independent and accurate valuation of properties, including
confirmation of sales and financing concessions such as down payment
assistance and seller contributions.
Two recent GAO reviews found that FHA performs some oversight of both
lenders and appraisers, but that opportunities exist for improved
monitoring.[Footnote 57] As we have seen, additional opportunities
still exist for improving FHA's monitoring of loans with down payment
assistance. FHA carries out risk-based monitoring of lenders and
appraisers that are involved in the process of endorsing FHA-insured
loans, using loan performance data (e.g., higher early defaults and
claims), complaints of irregularities or fraudulent practices, the
results of technical reviews of individual loans, and other factors to
target lenders for review. However, FHA has not implemented targeted
monitoring of lenders that do a high volume of loans with down payment
assistance. HUD monitors appraisers that it has determined pose risks
to FHA's insurance fund, targeting individual appraisers on several
risk factors, such as involvement with loans that have early default
rates and those that are insured under HUD programs known to be at a
higher risk of fraud and abuse. FHA has also implemented targeted
monitoring of appraisers that do a high volume of loans with down
payment assistance. When an appraiser is targeted, FHA first does a
desk review and then, if necessary, conducts a field review.
Conclusions:
Homebuyers receiving down payment assistance from seller-funded
nonprofits pay higher purchase prices, reducing their initial equity in
the home. In effect, these homebuyers are financing the down payment
assistance and paying for it over time. Moreover, loans with down
payment assistance--particularly from seller-funded sources--perform
significantly worse than loans without such assistance. These loans
have higher claims and delinquencies--meaning that some households
receiving assistance ultimately lose their homes. However, down payment
assistance has helped some households become homeowners, or become
homeowners sooner than they might have without such assistance.
Down payment assistance can impose additional risks to the loans FHA
insures, and it has taken steps toward managing these risks by
conducting ad hoc loan performance analyses and studies. More recently,
HUD has supported legislation for a no down payment product that would
help homebuyers who lack down payment funds, obviating the need for
down payment assistance. This legislation includes tools for mitigating
the risks of such loans with higher premiums and homebuyer counseling.
We previously recommended that Congress and FHA consider a number of
means, such as enhanced monitoring, to mitigate the risks that a no
down payment product and any other new single-family insurance product
may pose. Such techniques would help protect the Fund while allowing
FHA time to learn more about the performance of such loans.[Footnote
58] Likewise, such tools may be useful in mitigating the risks
associated with loans with down payment assistance.
Although FHA has taken some steps to understand the risks associated
with loans with down payment assistance, it could take additional steps
to understand and manage the risks that loans with down payment
assistance represent, while still meeting its mission of expanding
homeownership opportunities. Furthermore, because the proportion of
loans FHA insures that involve some form of down payment assistance has
increased dramatically in the last 5 years, and because the risks
associated with down payment assistance are substantial, the need for
FHA to better manage these risks has become increasingly important. For
example, FHA requires lenders to collect and report information on the
presence and source of down payment assistance, but it does not require
them to collect and report whether the entity providing the assistance
is funded by property sellers. Without this information, FHA cannot, on
a regular basis, monitor and evaluate the prevalence of this form of
assistance or its impact on loan performance.
More routine and systematic analysis of the impact that all forms of
down payment assistance have on loan performance would also provide FHA
with an ongoing assessment of the effect that the increasing use of
down payment assistance is having on loan performance. Though we found
that the presence and source of down payment assistance is an important
predictor of loan performance, FHA does not now include it as a factor
in its TOTAL Mortgage Scorecard automated underwriting tool. We
recommended in our September 2005 report that FHA assess and report the
impact that including the presence of down payment assistance would
have on the forecasting ability of the loan performance models used in
FHA's actuarial reviews of the Fund.[Footnote 59] Consistent with our
recommendation, in October 2005, FHA, for the first time, included down
payment assistance as a factor in its annual actuarial review estimates
of loan performance. However, because data on the use and source of
down payment assistance is still limited, the review may underestimate
the impact that down payment assistance has on claims. Further the
review does not consider the impact that down payment assistance may
have on the severity of claims.
Finally, although FHA holds lenders and appraisers accountable for the
quality of appraisals, appraisers may not have complete information
affecting the sales price of the home. Specifically, FHA requires
lenders to inform appraisers of all contract terms, including seller
concessions, which may include down payment assistance. However, FHA
does not require lenders to inform appraisers when down payment
assistance is provided by a seller-funded nonprofit. Further, as we
have seen, such assistance creates an indirect funding stream from the
seller to the buyer and, thus, becomes, in effect, a seller inducement.
However, because FHA does not consider down payment assistance from a
seller-funded nonprofit an inducement to purchase, it does not require
that lenders reduce the sales price before applying the appropriate LTV
ratio.
Recommendations for Executive Action:
While balancing the goals of providing homeownership opportunities and
managing risk, FHA should consider implementing additional controls to
manage the risks associated with loans that involve "gifts" of down
payment assistance, especially from seller-funded nonprofit
organizations, as these loans pose additional risks to the FHA mortgage
insurance fund. Specifically, given the increased risks posed by loans
with down payment assistance, from any source, we recommend that the
Secretary of HUD direct the Assistant Secretary for Housing (Federal
Housing Commissioner) to consider the following four actions to better
understand and manage these risks:
* To provide FHA with data that would permit the agency to identify
whether down payment assistance is from a seller-funded down payment
assistance provider, modify FHA's "gift letter source" categories to
include "nonprofit seller-funded" and "nonprofit nonseller-funded" and
require lenders to accurately identify and report this information when
submitting loan information to FHA;
* To more fully consider the risks posed by down payment assistance
when underwriting loans, include the presence and source of down
payment assistance as a loan variable in FHA's TOTAL Mortgage Scorecard
during the underwriting process;
* To ensure that FHA has an ongoing understanding of the impact that
down payment assistance has on loan performance, implement routine and
targeted performance monitoring of loans with down payment assistance,
including analyses that consider the source of assistance; and:
* To more accurately reflect the impact that down payment assistance
has on loan performance, continue to include the presence and source of
down payment assistance in future loan performance models. To enhance
the actuarial reviews' estimates of claims, consider including in the
annual review of actuarial soundness, the impact that the presence and
source of down payment assistance has on claim severity.
We further recommend that the Secretary of HUD direct the Assistant
Secretary for Housing (Federal Housing Commissioner) to take the
following two actions to balance the goals of expanding homeownership
and sustaining the actuarial soundness of the Fund by managing the
risks associated with loans that involve "gifts" of down payment
assistance from nonprofit organizations that receive funding from
sellers:
* To ensure that appraisers have the information necessary to establish
the market value of the properties, require lenders to inform
appraisers about the presence of down payment assistance from a seller-
funded source; and:
* Because down payment assistance provided by seller-funded entities
is, in effect, a seller inducement, revise FHA standards to treat
assistance from seller-funded nonprofits as a gift from the seller and,
therefore, subject to the prohibition against using seller
contributions to meet the 3 percent borrower contribution requirement.
Agency Comments and Our Evaluation:
We provided a draft of this report to HUD for its review and comment.
We received written comments from HUD's Assistant Secretary for Housing
(Federal Housing Commissioner), which are reprinted in appendix IV. HUD
generally agreed with the report's findings, noting that the analysis
of loan performance is consistent with its own findings regarding the
performance of loans with down payment assistance and how seller-funded
down payment assistance programs operate. HUD also agreed to take steps
that will improve its oversight of down payment assistance lending.
Specifically, HUD will modify its information systems to document
assistance from seller-funded nonprofits, and HUD will consider
incorporating down payment assistance into FHA's TOTAL Mortgage
Scorecard and requiring lenders to inform appraisers when assistance is
provided by seller-funded nonprofits.
The department commented on certain aspects of selected
recommendations. First, although HUD agreed with the report's
recommendation to perform routine and targeted loan performance
analyses of loans with down payment assistance, it maintained that FHA
already performs monitoring of these loans. We recognized that FHA has
conducted ad hoc risk analyses of its loans with down payment
assistance. Additionally, the actuarial review of FHA's insurance Fund
for 2005 includes, for the first time, down payment assistance as a
variable in its model of loan performance. Consistent with our
findings, the 2005 actuarial review found the presence of down payment
assistance to be a significant factor in explaining loan performance.
Further, the 2005 actuarial review states that loans with down payment
assistance should be closely monitored. We agree. Because the
proportion of loans FHA insures that involve some form of down payment
assistance is growing dramatically, and because the risks associated
with down payment assistance are substantial, we continue to recommend
that FHA more routinely monitor the performance of loans with down
payment assistance.
Second, HUD disagreed with our recommendation that it should revise its
standards to prohibit the use of down payment assistance from seller-
funded nonprofit organizations to meet the three percent borrower
contribution requirement. Our recommendation was based on our
conclusion that the down payment assistance provided by seller-funded
nonprofits was, in effect, a seller inducement to purchase. As the
basis of its disagreement with our recommendation, FHA cites a 1998
internal HUD Office of the General Counsel memorandum, acknowledged in
our report. The 1998 HUD memorandum reasoned that as long as seller-
funded down payment assistance is provided to the buyer before closing,
and the seller's contribution to the nonprofit entity occurs after
closing, the buyer has not received funds that can be directly traced
to the seller's contribution.
We realize that FHA relies on HUD's 1998 memorandum to authorize
sellers to do indirectly what they cannot do directly, namely provide
gifts of down payment assistance to buyers. We continue to believe that
HUD should recognize that because gifts of down payment assistance from
seller-funded nonprofits are ultimately funded by the sellers, they are
like gifts of down payment assistance made directly by sellers. We,
therefore, continue to believe that FHA should revise its standards to
treat assistance from a seller-funded entity as a seller inducement to
purchase.
In addition, as noted in our report, HUD agreed with our conclusion and
recommendation after it issued its 1998 memorandum. In 1999, HUD
proposed a rule that would have prohibited use of gifts from nonprofit
organizations for buyers' down payment assistance, if the organizations
received funds for the gifts--directly or indirectly--from sellers.
Although HUD later withdrew the rule without substantive explanation,
we continue to believe HUD's rationale in proposing the rule was
correct.
Third, in its comment letter, HUD stated that FHA has incorporated the
source of down payment assistance in the 2005 actuarial review of the
Mutual Mortgage Insurance Fund, which was published during the course
of obtaining HUD's comments on a draft of this report. In response, we
have added information describing the analyses contained in the 2005
actuarial review, and modified our recommendation to address a weakness
in the actuarial review's analysis of down payment assistance, and to
emphasize the need to continue considering the presence and source of
down payment assistance in future loan performance models.
As agreed with your office, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the report date. At that time, we will send copies of this report
to the appropriate Congressional Committees and the Secretary of
Housing and Urban Development. We also will make copies available to
others upon request. In addition, the report will be available at no
charge on the GAO Web site at [Hyperlink, http://www.gao.gov]
[Hyperlink, http://www.gao.gov]
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8678 or [Hyperlink, shearw@gao.gov]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix V.
Sincerely yours,
Signed by:
William B. Shear:
Director, Financial Markets and Community Investment:
[End of section]
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
To examine trends in the use of down payment assistance with loans
insured by the Federal Housing Administration (FHA), we obtained loan
data from the U.S. Department of Housing and Urban Development (HUD) on
single-family purchase money mortgage loans--that is, loans used for
the purchase of a home rather than to refinance an existing mortgage.
First, to measure the use of down payment assistance from fiscal year
2000 to 2002, we used two samples of loans originally drawn for a file
review study funded by HUD and conducted by the Concentrance Consulting
Group (Concentrance).[Footnote 60] That study found that FHA's Single-
Family Data Warehouse was not a reliable source for identifying loans
with down payment assistance. A review of paper files indicated that
down payment assistance was frequently not recorded in the database and
that the source of the assistance (government, nonprofit, relative,
etc.) was often miscoded. Therefore, we limited our review to the 8,294
files reviewed by Concentrance for which the presence, source, and
amount of assistance had been ascertained from a review of the paper
files. The national sample consisted of just over 5,000 loans from a
simple random sample of FHA purchase money loans endorsed in fiscal
years 2000, 2001, and 2002, while the Metropolitan Statistical Area
(MSA) sample consisted of just over 1,000 purchase money loans from
each of the three MSAs (Atlanta, Indianapolis, and Salt Lake City)
endorsed over the same time period.[Footnote 61] Only loans with loan-
to-value (LTV) ratios greater than 95 percent were sampled. The sample
included loans insured by FHA's 203(b) program, its main single-family
program, and its 234(c) condominium program. Small specialized
programs, such as 203(k) rehabilitation and 221(d) subsidized mortgages
were not included in the sample.
Second, to measure the use of down payment assistance for fiscal years
2003, 2004, and 2005, we obtained from HUD loan-level data for single-
family purchase money loans with an LTV ratio greater than 95 percent.
We utilized HUD's loan-level data for these years, because in January
2003 FHA implemented changes to its data collection requirements for
loans with down payment assistance. We believed that these changes
should lead to improved data quality.
We analyzed the data, by source of assistance, for trends in loan
volume and in the proportion of loans with down payment assistance. For
fiscal years 2000, 2001, and 2002, we generalized the percentage
breakouts from the representative sample to the universe of FHA-insured
single-family purchase money loans endorsed in these years. We also
analyzed state-by-state variations in the proportion of loans with
nonprofit down payment assistance; loans endorsed from May 2004 through
April 2005 were included in this analysis. We met with appropriate FHA
officials to discuss the quality of the data. Based on these
discussions, we determined that the FHA data we used were sufficiently
reliable for our analysis.
To examine the structure of the purchase transaction for loans with and
without down payment assistance, we reviewed HUD policy guidebooks and
reports on down payment assistance. We also interviewed HUD officials;
staff from Fannie Mae and Freddie Mac; staff from selected conventional
mortgage providers, private mortgage insurers, mortgage industry groups
representing realtors and appraisers, state and local government
agencies, and nonprofit down payment assistance providers; and
individual real estate agents and appraisers. During the interviews, we
asked a structured set of questions designed for the particular type of
industry participant. We also reviewed the Web sites of selected
mortgage industry participants.
To examine how down payment assistance impacts the prices of houses
purchased with FHA-insured loans, we examined the sales prices of homes
by the use and source of down payment assistance using property value
estimates derived from an Automated Valuation Model (AVM).[Footnote 62]
We contracted with First American Real Estate Solutions to obtain
property value estimates derived from their AVMs on two samples of FHA-
insured single-family purchase money loans. One sample included the
data set of 8,294 loans endorsed in fiscal years 2000, 2001, and 2002-
-the sample developed by Concentrance. The second sample included a
stratified random sample of 2,000 FHA purchase money loans with first
amortization dates in April 2005, extracted from FHA's Single-Family
Data Warehouse.[Footnote 63] We used the AVM data as benchmarks to
determine if a relationship existed between property valuation and the
presence and source of down payment assistance by examining the ratio
of the estimated AVM value to the appraised value and the sales price
of the home. We met with staff of First American Real Estate Solutions
to discuss the data and models in their AVM, including the steps the
firm takes to verify the accuracy and maintain the integrity of the
data. Based on these discussions, we determined that the AVM data we
used were sufficiently reliable for our analysis. For a detailed
description of our data sources and analysis, see appendix II.
To evaluate the influence of down payment assistance on the performance
of FHA-insured home mortgage loans, we conducted multiple loan
performance analyses on HUD data for the sample of loans endorsed in
fiscal years 2000, 2001, and 2002. We used information on the source of
down payment funds--data developed by Concentrance; delinquency, claim,
and loss data; and other factors that research had indicated can affect
loan performance. The loan performance data we used were current
through June 30, 2005. First, we analyzed loan performance by source of
down payment assistance, controlling for the maximum age of the loan.
Second, we compared the performance of the loans by the presence and
source of down payment assistance while holding other variables
constant. Third, we examined the size of the effect of down payment
assistance on loan performance relative to the size of the effect of
other variables that influence loan performance, including LTV ratio
and credit score. Fourth, using AVM data obtained from First American
Real Estate Solutions for these loans, we also assessed the extent to
which higher sales prices explained any difference in the performance
of FHA-insured loans with down payment assistance. For a detailed
description of our data sources, performance measures, and risk models,
see appendix III.
To examine the extent to which FHA standards and controls for loans
with down payment assistance are consistent with government internal
control guidelines and, as appropriate, mortgage industry practices, we
first assessed whether key FHA controls were consistent with the
guidelines in GAO's August 2001 Internal Control Management and
Evaluation Tool.[Footnote 64] These guidelines include (1) ensuring
that an agency's operations are consistent with any applicable industry
or business norms; (2) using qualitative and quantitative methods to
identify risk and determine relative risk rankings on a scheduled and
periodic basis; (3) ensuring that adequate mechanisms exist to identify
risks to the agency arising from its reliance on external parties to
perform critical agency operations; and (4) ensuring that statutory
requirements--as well as agency requirements, policies, and
regulations--are applied properly. Second, we compared FHA's standards
and controls to mortgage industry practices, as appropriate. We
interviewed officials from HUD, Fannie Mae, Freddie Mac, conventional
mortgage providers, private mortgage insurers, state and local
government agencies, and nonprofit down payment assistance providers.
These entities provided us with information about the controls they
reported using to manage the risks associated with affordable loan
products that permit down payment assistance. We did not verify that
these entities, in fact, used these controls. We also reviewed
descriptions of mortgage products permitting down payment assistance
that are supported by mortgage industry participants and compared the
standards used by these entities.
[End of section]
Appendix II: Automated Valuation Model Analysis:
This appendix describes our analysis of differences in the sales prices
and appraised values of homes purchased with and without down payment
assistance and insured by the Federal Housing Administration (FHA). The
U.S. Department of Housing and Urban Development's (HUD) Office of
Inspector General (OIG) and others have indicated that appraisals and
sales prices may be higher for homes with seller-funded assistance,
relative to comparable homes without such assistance. Higher prices for
comparable collateral can lead to higher loan amounts when supported by
higher appraisals, which may cause higher delinquency, claim, and loss
rates for loans with seller-funded assistance. To examine this
possibility, we contracted with First American Real Estate Solutions
(First American) to provide estimated house values from their Automated
Valuation Models (AVM). AVMs from First American and other vendors are
widely used by lenders, mortgage insurers, HUD, and government-
sponsored enterprises for quality control and other purposes.
First American obtains data from local governments, large lenders, and
other sources on house price sales and property characteristics across
most of the United States. These data are used in statistical analyses
that model the sales prices of properties, as a function of their
characteristics, and appreciation trends for the surrounding
neighborhoods. The models estimate a property's value on a given date,
along with a likely range for that value and a confidence score,
indicating the probability that the property's true value is within 10
percent of the estimated value. First American used four models to
value the transactions we submitted, with about 95 percent of the cases
relying on one of two models. Both of these are hybrid models, in that
they use both hedonic regression to estimate property value and repeat
sales methods to estimate a more precise estimated value for a
property.[Footnote 65] Hedonic regression places values on the
characteristics of a property, such as square footage, number of
bathrooms, and presence of a garage, to use when examining comparable
properties. The repeat sales method uses multiple sales of the same
properties over time to estimate the growth rates, and then uses these
growth rates to estimate a sales price based on the previous sales
prices of the property and the estimated growth rate in prices. In
about 5 percent of the cases, when these two models could not provide a
value estimate, two other models that rely on neural net methods to
produce value estimates were used.[Footnote 66]
GAO provided First American with addresses for the 8,294 loans in the
Concentrance Consulting Group (Concentrance) sample of loans endorsed
in fiscal years 2000, 2001, and 2002.[Footnote 67] First American was
asked to provide an estimate of each home's value with an "as-of" date
2 weeks before the loan's actual settlement date. GAO also provided
addresses from a stratified random sample of 2,000 FHA purchase money
loans extracted from FHA's Single-Family Data Warehouse with first
amortization dates in April 2005. The stratification was based on the
gift letter source code in FHA's system, so that 1,000 loans had gift
assistance from a nonprofit, and 1,000 did not.[Footnote 68] As GAO did
not have the settlement dates for this sample, we asked the contractor
to value the homes as of March 1, 2005.[Footnote 69] We did not provide
First American with any information pertaining to the source of the
purchaser's down payment funds.
First American might not be able to estimate the value of a particular
property for a variety of reasons. For example, a data entry error or
unusual address might prevent a match between FHA's database and the
contractor's, or a local jurisdiction might not allow public access to
property transaction records, reducing the number of properties in the
contractor's database. In addition, there might be too few transactions
in an area to allow a precise estimate of a property's value. "Hit
rate" refers to the percentage of loans for which First American was
able to make an estimate of property value. The hit rates were over 70
percent for the 2000, 2001, and 2002 national and Metropolitan
Statistical Area (MSA) samples and 65 percent for the 2005 stratified
national sample (tables 1-8). Hit rates were low for the Indianapolis
component of the MSA sample, and confidence scores for Indianapolis
were much lower than for the other two MSAs and for both national
samples. Further, in Indianapolis, estimated values were much higher
than sales prices for the loans that were valued. First American told
us that Indiana is a nondisclosure state--that is, state law prohibits
access to property transaction records by the general public.[Footnote
70] For this reason, the contractor used secondary sources to value
properties in this state. Utah is also a nondisclosure state. Although
hit rates and confidence scores were higher for Salt Lake City than for
Indianapolis, sales price ratios were also high for this MSA.
Therefore, we dropped the Indianapolis and Salt Lake City components
from one set of MSA results, and we present one table with just the
Atlanta results. While some nondisclosure states, such as Indiana and
Kansas, had low confidence scores, others did not. For example, Texas
is a nondisclosure state but had a high hit rate and high confidence
scores. First American has an arrangement that allows them to access
Multiple Listing Service data for several urban counties in Texas,
providing a substitute for government records. For two cases that
clearly represented outliers in the Concentrance data files, we
replaced a value from the Concentrance review with a value from the
Single-Family Data Warehouse.[Footnote 71]
To examine the possibility that the presence of seller-funded nonprofit
down payment assistance might increase appraisals and sales prices, we
calculated the ratio of the AVM estimate of property value to the sales
price and the appraised value from FHA's records. Both the numerator
and denominator(s) were random variables. The AVM estimate was a model
estimate with an associated error, and sales prices and appraisals
reflected the buyer's or appraiser's estimate of a home's true value,
which may have errors of varying magnitudes. The ratio of two normally
distributed random variables has a Cauchy distribution (a distribution
with fat tails and an undefined mean). Hence, tests of the difference
in medians are generally more informative than tests of differences in
means.[Footnote 72] We tested the difference in medians with a Kruskal-
Wallis test and the difference in means with a T-test. We also tested
the difference in medians or in means using only records with
confidence scores of more than 50, rejecting transactions with low
confidence; we report these results in tables 1-8 as the high
confidence median and the high confidence mean. We also tested for
differences in the trimmed means, rejecting the top and bottom 1
percent of the transactions; we report these results in tables 1-8 as
the trimmed mean.[Footnote 73] Because of the statistical problems
inherent in testing the mean of a ratio of random variables, we relied
on the difference in medians as our primary indicator of a significant
difference in valuations.
The results of the analysis are presented in tables 1-4, which show the
difference in the ratio of the AVM estimate to the appraised value and
sales price for loans with and without nonprofit down payment
assistance. The median ratio of the AVM estimate to the appraised value
was slightly over 1, except for the MSA sample with Indianapolis
included, for which the ratio was about 1.1.[Footnote 74] The median
ratio of the AVM value to the sales price was generally 1 or 2
percentage points higher than the ratio of the AVM value to the
appraised value, as appraised values were the same as sales prices for
about half the transactions but were up to 4 percentage points higher
than sales prices for most of the other half. In the national sample
for 2000, 2001, and 2002, prices and appraisal ratios were both about 3
percentage points lower for loans with seller-funded assistance,
indicating that sales prices and appraisals were typically about 3
percentage points higher for transactions with seller-funded assistance
than they were for comparable homes without such assistance. The
appraisal ratio was also 3 percentage points lower when the sample was
restricted to estimated values with confidence scores above 50; in
these cases, the sales price ratio was 4 percentage points lower,
indicating that homes with seller-funded assistance sold for about 4
percentage points more than comparable homes without assistance.
Differences in the MSA sample for these years were not as large, with a
1 percentage point difference in the median appraisal ratio and
differences of about 2 percentage points for the price ratio and for
the appraisal ratio when the sample was restricted to estimated values
with high confidence scores. Kruskal-Wallis tests for a difference in
medians were always significant at 1 percent in one-tailed
tests.[Footnote 75] T-tests for differences in means were generally
significant at 5 percent or more in one-tailed tests, except for the
national sample appraisal ratio. T-tests were also conducted on
differences in means with the top and bottom 1 percent of the ratio
distribution excluded. These trimmed mean results were similar to the
mean results but with higher significance levels and sometimes larger
differences.
For the March 2005 national sample, median differences in both sales
price and appraisal ratios were about 2.3 percentage points and were
statistically significant with p-values of less than 1 percent in one-
tailed tests. These findings indicate that sales prices and appraisals
were about 2.3 percentage points higher for transactions with nonprofit
assistance than they were for comparable homes without nonprofit
assistance. Mean differences were slightly smaller, ranging between 1
and 2 percentage points. The mean price difference was statistically
significant at 5 percent in a one-tailed test, while appraisal ratio
differences in means were not significant. Again, because of the
statistical difficulties inherent in testing the ratio of two random
variables, we relied primarily on tests of the difference in medians.
Table 1: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, National Sample, Fiscal Years 2000,
2001, and 2002:
78 % hit rate. Confidence score: 78 median: Type: Appraisal value ratio;
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: No;
78 % hit rate. Confidence score: 78 median: Mean: 1.071;
78 % hit rate. Confidence score: 78 median: Median: 1.030;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.068;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.027;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.063.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: Yes;
78 % hit rate. Confidence score: 78 median: Mean: 1.055;
78 % hit rate. Confidence score: 78 median: Median: 1.002;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.041;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.000;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.043.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance:
Difference;
78 % hit rate. Confidence score: 78 median: Mean: 0.016;
78 % hit rate. Confidence score: 78 median: Median: 0.028;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.027;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.027;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.020.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: p-
value;
78 % hit rate. Confidence score: 78 median: Mean: 0.084;
78 % hit rate. Confidence score: 78 median: Median: 0.001;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.008;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.001;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.006.
78 % hit rate. Confidence score: 78 median: Type: Sales price ratio;
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: No;
78 % hit rate. Confidence score: 78 median: Mean: 1.095;
78 % hit rate. Confidence score: 78 median: Median: 1.046;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.090;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.043;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.084.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: Yes;
78 % hit rate. Confidence score: 78 median: Mean: 1.067;
78 % hit rate. Confidence score: 78 median: Median: 1.012;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.053;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.007;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.053.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance:
Difference;
78 % hit rate. Confidence score: 78 median: Mean: 0.028;
78 % hit rate. Confidence score: 78 median: Median: 0.034;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.037;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.036;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.031.
78 % hit rate. Confidence score: 78 median: Nonprofit assistance: p-
value;
78 % hit rate. Confidence score: 78 median: Mean: 0.011;
78 % hit rate. Confidence score: 78 median: Median: 0.001;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.001;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.001;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.001.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
p-values statistically significant at 5% or better are bold.
[End of table]
Table 2: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, MSA Sample, Fiscal Years 2000, 2001,
and 2002:
85 % hit rate. Confidence score: 78 median: Type: Appraisal value ratio;
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: No;
85 % hit rate. Confidence score: 78 median: Mean: 1.106;
85 % hit rate. Confidence score: 78 median: Median: 1.080;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.086;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.061;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.102.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: Yes;
85 % hit rate. Confidence score: 78 median: Mean: 1.096;
85 % hit rate. Confidence score: 78 median: Median: 1.067;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.068;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.039;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.093.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance:
Difference;
85 % hit rate. Confidence score: 78 median: Mean: 0.010;
85 % hit rate. Confidence score: 78 median: Median: 0.013;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.018;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.022;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.009.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: p-
value;
85 % hit rate. Confidence score: 78 median: Mean: 0.093;
85 % hit rate. Confidence score: 78 median: Median: 0.024;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.008;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.001;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.058.
85 % hit rate. Confidence score: 78 median: Type: Sales price ratio;
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: No;
85 % hit rate. Confidence score: 78 median: Mean: 1.126;
85 % hit rate. Confidence score: 78 median: Median: 1.095;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.105;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.076;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.123.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: Yes;
85 % hit rate. Confidence score: 78 median: Mean: 1.110;
85 % hit rate. Confidence score: 78 median: Median: 1.078;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.081;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.052;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.107.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance:
Difference;
85 % hit rate. Confidence score: 78 median: Mean: 0.016;
85 % hit rate. Confidence score: 78 median: Median: 0.017;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.024;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.024;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.016.
85 % hit rate. Confidence score: 78 median: Nonprofit assistance: p-
value;
85 % hit rate. Confidence score: 78 median: Mean: 0.015;
85 % hit rate. Confidence score: 78 median: Median: 0.003;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.001;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.001;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.006.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
p-values statistically significant at 5% or better are bold.
[End of table]
Table 3: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, Atlanta MSA Sample, Fiscal Years
2000, 2001, and 2002:
95 % hit rate. Confidence score: 85 median: Type: Appraisal value ratio;
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: No;
95 % hit rate. Confidence score: 85 median: Mean: 1.037;
95 % hit rate. Confidence score: 85 median: Median: 1.013;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.035;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.012;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.035.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: Yes;
95 % hit rate. Confidence score: 85 median: Mean: 1.025;
95 % hit rate. Confidence score: 85 median: Median: 0.989;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.022;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.988;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.012.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance:
Difference;
95 % hit rate. Confidence score: 85 median: Mean: 0.012;
95 % hit rate. Confidence score: 85 median: Median: 0.024;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.013;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.024;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.023.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: p-
value;
95 % hit rate. Confidence score: 85 median: Mean: 0.165;
95 % hit rate. Confidence score: 85 median: Median: 0.001;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.130;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.001;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.002.
95 % hit rate. Confidence score: 85 median: Type: Sales price ratio;
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: No;
95 % hit rate. Confidence score: 85 median: Mean: 1.057;
95 % hit rate. Confidence score: 85 median: Median: 1.028;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.056;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.027;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.057.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: Yes;
95 % hit rate. Confidence score: 85 median: Mean: 1.039;
95 % hit rate. Confidence score: 85 median: Median: 1.001;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.036;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.001;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.026.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance:
Difference;
95 % hit rate. Confidence score: 85 median: Mean: 0.018;
95 % hit rate. Confidence score: 85 median: Median: 0.027;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.020;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.026;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.031.
95 % hit rate. Confidence score: 85 median: Nonprofit assistance: p-
value;
95 % hit rate. Confidence score: 85 median: Mean: 0.079;
95 % hit rate. Confidence score: 85 median: Median: 0.001;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.056;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.001;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.001.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
p-values statistically significant at 5% or better are bold.
[End of table]
Table 4: The Ratio of AVM Value to Appraisal Value and Sales Price--
Nonprofit Down Payment Assistance, National Sample, March 2005:
65 % hit rate. Confidence score: 77 median: Type: Appraisal value ratio;
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: No;
65 % hit rate. Confidence score: 77 median: Mean: 1.051;
65 % hit rate. Confidence score: 77 median: Median: 1.024;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.049;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.024;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.047.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: Yes;
65 % hit rate. Confidence score: 77 median: Mean: 1.037;
65 % hit rate. Confidence score: 77 median: Median: 1.001;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.036;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.000;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.025.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance:
Difference;
65 % hit rate. Confidence score: 77 median: Mean: 0.014;
65 % hit rate. Confidence score: 77 median: Median: 0.023;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.013;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.024;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.022.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: p-
value;
65 % hit rate. Confidence score: 77 median: Mean: 0.116;
65 % hit rate. Confidence score: 77 median: Median: 0.007;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.156;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.006;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.006.
65 % hit rate. Confidence score: 77 median: Type: Sales price ratio;
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: No;
65 % hit rate. Confidence score: 77 median: Mean: 1.079;
65 % hit rate. Confidence score: 77 median: Median: 1.044;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.075;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.039;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.070.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: Yes;
65 % hit rate. Confidence score: 77 median: Mean: 1.058;
65 % hit rate. Confidence score: 77 median: Median: 1.021;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.057;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.013;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.048.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance:
Difference;
65 % hit rate. Confidence score: 77 median: Mean: 0.021;
65 % hit rate. Confidence score: 77 median: Median: 0.023;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.018;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.026;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.022.
65 % hit rate. Confidence score: 77 median: Nonprofit assistance: p-
value;
65 % hit rate. Confidence score: 77 median: Mean: 0.049;
65 % hit rate. Confidence score: 77 median: Median: 0.008;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.084;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.006;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.013.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
p-values statistically significant at 5% or better are bold.
[End of table]
We also tested for the differences in ratios between transactions with
no gift assistance versus transactions with gift assistance from
sources other than nonprofits (tables 5-8). We found no significant
differences in any of the samples that we examined and no consistent
pattern in the signs of the differences. Transactions with assistance
had differences in medians that were sometimes slightly positive and
sometimes slightly negative.
Table 5: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, National Sample, Fiscal
Years 2000, 2001, and 2002:
78 % hit rate. Confidence score: 78 median: Type: Appraisal value ratio;
78 % hit rate. Confidence score: 78 median: Other assistance: No;
78 % hit rate. Confidence score: 78 median: Mean: 1.072;
78 % hit rate. Confidence score: 78 median: Median: 1.032;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.069;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.028;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.064.
78 % hit rate. Confidence score: 78 median: Other assistance: Yes;
78 % hit rate. Confidence score: 78 median: Mean: 1.070;
78 % hit rate. Confidence score: 78 median: Median: 1.027;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.065;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.024;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.060.
78 % hit rate. Confidence score: 78 median: Other assistance:
Difference;
78 % hit rate. Confidence score: 78 median: Mean: 0.002;
78 % hit rate. Confidence score: 78 median: Median: 0.005;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.004;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.004;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.004.
78 % hit rate. Confidence score: 78 median: Other assistance: p-value;
78 % hit rate. Confidence score: 78 median: Mean: 0.430;
78 % hit rate. Confidence score: 78 median: Median: 0.420;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.280;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.360;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.255.
78 % hit rate. Confidence score: 78 median: Type: Sales price ratio;
78 % hit rate. Confidence score: 78 median: Other assistance: No;
78 % hit rate. Confidence score: 78 median: Mean: 1.094;
78 % hit rate. Confidence score: 78 median: Median: 1.046;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.091;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.042;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.083.
78 % hit rate. Confidence score: 78 median: Other assistance: Yes;
78 % hit rate. Confidence score: 78 median: Mean: 1.096;
78 % hit rate. Confidence score: 78 median: Median: 1.046;
78 % hit rate. Confidence score: 78 median: High confidence mean: 1.089;
78 % hit rate. Confidence score: 78 median: High confidence median:
1.043;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 1.086.
78 % hit rate. Confidence score: 78 median: Other assistance:
Difference;
78 % hit rate. Confidence score: 78 median: Mean: -0.002;
78 % hit rate. Confidence score: 78 median: Median: 0.000;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.002;
78 % hit rate. Confidence score: 78 median: High confidence median: -
0.001;
78 % hit rate. Confidence score: 78 median: Trimmed mean: -0.003.
78 % hit rate. Confidence score: 78 median: Other assistance: p-value;
78 % hit rate. Confidence score: 78 median: Mean: 0.500;
78 % hit rate. Confidence score: 78 median: Median: 0.397;
78 % hit rate. Confidence score: 78 median: High confidence mean: 0.420;
78 % hit rate. Confidence score: 78 median: High confidence median:
0.500;
78 % hit rate. Confidence score: 78 median: Trimmed mean: 0.500.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
no differences were statistically significant at 5% or better.
[End of table]
Table 6: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, MSA Sample, Fiscal Years
2000, 2001, and 2002:
85 % hit rate. Confidence score: 78 median: Type: Appraisal value ratio;
85 % hit rate. Confidence score: 78 median: Other assistance: No;
85 % hit rate. Confidence score: 78 median: Mean: 1.108;
85 % hit rate. Confidence score: 78 median: Median: 1.079;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.085;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.052;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.103.
85 % hit rate. Confidence score: 78 median: Other assistance: Yes;
85 % hit rate. Confidence score: 78 median: Mean: 1.101;
85 % hit rate. Confidence score: 78 median: Median: 1.080;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.087;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.072;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.101.
85 % hit rate. Confidence score: 78 median: Other assistance:
Difference;
85 % hit rate. Confidence score: 78 median: Mean: 0.007;
85 % hit rate. Confidence score: 78 median: Median: -0.001;
85 % hit rate. Confidence score: 78 median: High confidence mean: -
0.002;
85 % hit rate. Confidence score: 78 median: High confidence median: -
0.020;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.002.
85 % hit rate. Confidence score: 78 median: Other assistance: p-value;
85 % hit rate. Confidence score: 78 median: Mean: 0.194;
85 % hit rate. Confidence score: 78 median: Median: 0.381;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.500;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.500;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.392.
85 % hit rate. Confidence score: 78 median: Type: Sales price ratio;
85 % hit rate. Confidence score: 78 median: Other assistance: No;
85 % hit rate. Confidence score: 78 median: Mean: 1.128;
85 % hit rate. Confidence score: 78 median: Median: 1.097;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.105;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.068;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.124.
85 % hit rate. Confidence score: 78 median: Other assistance: Yes;
85 % hit rate. Confidence score: 78 median: Mean: 1.122;
85 % hit rate. Confidence score: 78 median: Median: 1.093;
85 % hit rate. Confidence score: 78 median: High confidence mean: 1.106;
85 % hit rate. Confidence score: 78 median: High confidence median:
1.083;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 1.121.
85 % hit rate. Confidence score: 78 median: Other assistance:
Difference;
85 % hit rate. Confidence score: 78 median: Mean: 0.006;
85 % hit rate. Confidence score: 78 median: Median: 0.004;
85 % hit rate. Confidence score: 78 median: High confidence mean: -
0.001;
85 % hit rate. Confidence score: 78 median: High confidence median: -
0.015;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.003.
85 % hit rate. Confidence score: 78 median: Other assistance: p-value;
85 % hit rate. Confidence score: 78 median: Mean: 0.224;
85 % hit rate. Confidence score: 78 median: Median: 0.375;
85 % hit rate. Confidence score: 78 median: High confidence mean: 0.500;
85 % hit rate. Confidence score: 78 median: High confidence median:
0.500;
85 % hit rate. Confidence score: 78 median: Trimmed mean: 0.340.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
no differences were statistically significant at 5% or better.
[End of table]
Table 7: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, Atlanta MSA Sample, Fiscal
Years 2000, 2001, and 2002:
95 % hit rate. Confidence score: 85 median: Type: Appraisal value ratio;
95 % hit rate. Confidence score: 85 median: Other assistance: No;
95 % hit rate. Confidence score: 85 median: Mean: 1.037;
95 % hit rate. Confidence score: 85 median: Median: 1.012;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.036;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.012;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.035.
95 % hit rate. Confidence score: 85 median: Other assistance: Yes;
95 % hit rate. Confidence score: 85 median: Mean: 1.036;
95 % hit rate. Confidence score: 85 median: Median: 1.017;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.033;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.017;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.036.
95 % hit rate. Confidence score: 85 median: Other assistance:
Difference;
95 % hit rate. Confidence score: 85 median: Mean: 0.001;
95 % hit rate. Confidence score: 85 median: Median: -0.005;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.003;
95 % hit rate. Confidence score: 85 median: High confidence median: -
0.005;
95 % hit rate. Confidence score: 85 median: Trimmed mean: -0.001.
95 % hit rate. Confidence score: 85 median: Other assistance: p-value;
95 % hit rate. Confidence score: 85 median: Mean: 0.450;
95 % hit rate. Confidence score: 85 median: Median: 0.500;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.400;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.500;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.500.
95 % hit rate. Confidence score: 85 median: Type: Sales price ratio;
95 % hit rate. Confidence score: 85 median: Other assistance: No;
95 % hit rate. Confidence score: 85 median: Mean: 1.056;
95 % hit rate. Confidence score: 85 median: Median: 1.026;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.056;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.025;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.057.
95 % hit rate. Confidence score: 85 median: Other assistance: Yes;
95 % hit rate. Confidence score: 85 median: Mean: 1.058;
95 % hit rate. Confidence score: 85 median: Median: 1.030;
95 % hit rate. Confidence score: 85 median: High confidence mean: 1.056;
95 % hit rate. Confidence score: 85 median: High confidence median:
1.029;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 1.058.
95 % hit rate. Confidence score: 85 median: Other assistance:
Difference;
95 % hit rate. Confidence score: 85 median: Mean: -0.002;
95 % hit rate. Confidence score: 85 median: Median: -0.004;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.000;
95 % hit rate. Confidence score: 85 median: High confidence median: -
0.004;
95 % hit rate. Confidence score: 85 median: Trimmed mean: -0.001.
95 % hit rate. Confidence score: 85 median: Other assistance: p-value;
95 % hit rate. Confidence score: 85 median: Mean: 0.500;
95 % hit rate. Confidence score: 85 median: Median: 0.500;
95 % hit rate. Confidence score: 85 median: High confidence mean: 0.500;
95 % hit rate. Confidence score: 85 median: High confidence median:
0.500;
95 % hit rate. Confidence score: 85 median: Trimmed mean: 0.500.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
no differences were statistically significant at 5% or better.
[End of table]
Table 8: The Ratio of AVM Value to Appraisal Value and Sales Price--
Down Payment Assistance from Other Sources, National Sample, March
2005:
65 % hit rate. Confidence score: 77 median: Type: Appraisal value ratio;
65 % hit rate. Confidence score: 77 median: Other assistance: No;
65 % hit rate. Confidence score: 77 median: Mean: 1.051;
65 % hit rate. Confidence score: 77 median: Median: 1.026;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.031;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.022;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.049.
65 % hit rate. Confidence score: 77 median: Other assistance: Yes;
65 % hit rate. Confidence score: 77 median: Mean: 1.053;
65 % hit rate. Confidence score: 77 median: Median: 1.024;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.021;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.028;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.044.
65 % hit rate. Confidence score: 77 median: Other assistance:
Difference;
65 % hit rate. Confidence score: 77 median: Mean: -0.002;
65 % hit rate. Confidence score: 77 median: Median: 0.002;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.010;
65 % hit rate. Confidence score: 77 median: High confidence median: -
0.006;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.005.
65 % hit rate. Confidence score: 77 median: Other assistance: p-value;
65 % hit rate. Confidence score: 77 median: Mean: 0.500;
65 % hit rate. Confidence score: 77 median: Median: 0.354;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.373;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.433;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.379.
65 % hit rate. Confidence score: 77 median: Type: Sales price ratio;
65 % hit rate. Confidence score: 77 median: Other assistance: No;
65 % hit rate. Confidence score: 77 median: Mean: 1.073;
65 % hit rate. Confidence score: 77 median: Median: 1.040;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.069;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.033;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.069.
65 % hit rate. Confidence score: 77 median: Other assistance: Yes;
65 % hit rate. Confidence score: 77 median: Mean: 1.095;
65 % hit rate. Confidence score: 77 median: Median: 1.045;
65 % hit rate. Confidence score: 77 median: High confidence mean: 1.091;
65 % hit rate. Confidence score: 77 median: High confidence median:
1.054;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 1.072.
65 % hit rate. Confidence score: 77 median: Other assistance:
Difference;
65 % hit rate. Confidence score: 77 median: Mean: -0.022;
65 % hit rate. Confidence score: 77 median: Median: -0.005;
65 % hit rate. Confidence score: 77 median: High confidence mean: -
0.022;
65 % hit rate. Confidence score: 77 median: High confidence median: -
0.021;
65 % hit rate. Confidence score: 77 median: Trimmed mean: -0.003.
65 % hit rate. Confidence score: 77 median: Other assistance: p-value;
65 % hit rate. Confidence score: 77 median: Mean: 0.500;
65 % hit rate. Confidence score: 77 median: Median: 0.500;
65 % hit rate. Confidence score: 77 median: High confidence mean: 0.500;
65 % hit rate. Confidence score: 77 median: High confidence median:
0.500;
65 % hit rate. Confidence score: 77 median: Trimmed mean: 0.500.
Source: GAO.
Notes: p-value is for one-tailed test;
p-value of .001 means .001 or less;
p-value of .5 means .5 or greater;
no differences were statistically significant at 5% or better.
[End of table]
[End of section]
Appendix III: Loan Performance Analysis:
This appendix describes the econometric models that we built and the
analysis that we conducted to examine the performance of mortgage loans
that received down payment assistance and were insured by the U.S.
Department of Housing and Urban Development's (HUD) Federal Housing
Administration (FHA). We developed multiple regression models to
forecast delinquency, claim, prepayment, and loss on two samples of FHA
single-family purchase money loans endorsed in 2000, 2001, and
2002.[Footnote 76] The national sample included all 50 states and the
District of Columbia but excluded U.S. territories. The Metropolitan
Statistical Area (MSA) sample consisted of loans in three MSAs where
the use of down payment assistance was relatively high: Atlanta,
Indianapolis, and Salt Lake City. The data were current as of June 30,
2005.
Our forecasting models used observations on loan quarters--that is,
information on the characteristics and status of an insured loan during
each quarter of its life - to predict conditional foreclosure and
prepayment probabilities.[Footnote 77] Our model used a pair of binary
logistic regressions to predict the probability of claim, or
prepayment, as a function of several key predictor variables. Some of
these variables, such as initial loan-to value (LTV) ratio, credit
score, and the presence of down payment assistance, do not vary over
the life of a loan, while others, such as accumulated equity from
amortization and price appreciation, may change and are updated
quarterly.
Data and Sample Selection:
For our analysis, we used the 8,294 loans in the Concentrance
Consulting Group's (Concentrance) sample of FHA single-family purchase
money mortgage loans endorsed in fiscal years 2000, 2001, and 2002, for
which the presence, source, and amount of assistance had been
ascertained through a loan file review.[Footnote 78] Only loans with
LTV ratios greater than 95 percent were sampled. The national sample
consisted of just over 5,000 loans from a simple random sample of
purchase money loans, while the MSA sample consisted of just over 1,000
purchase money loans from each of three MSAs: Atlanta, Indianapolis,
and Salt Lake City. Concentrance's loan file review also recorded the
borrowers' credit scores, an important predictor of loan performance
that, at the time, was not captured in FHA's Single-Family Data
Warehouse.
We supplemented these files with information from FHA's Single-Family
Data Warehouse. We then merged variables reflecting delinquency, claim,
and prepayment information with the Concentrance files, along with
information on borrowers' assets and data on national and local
economic conditions. We obtained state-level unemployment rates from
the Bureau of Labor Statistics, 30-year fixed rate mortgage rates from
Freddie Mac, 1-and 10-year Treasury interest rates from the Federal
Reserve, the Personal Consumption Expenditure Deflator from the Bureau
of Economic Analysis, and median existing house prices at the state
level from Global Insights, Inc., in order to measure house price
appreciation over time. Table 9 lists the names and definitions of the
variables used in the models.
Table 9: Names and Definitions of the Variables Used in Our Regression
Models:
Constructed risk;
Combines the variables used in a prior GAO report to predict claim
probability, including initial LTV ratio, price appreciation after
origination, loan size, location, interest rate, unemployment rate,
loan type, and other variables[A].
FICO score;
FICO score of borrower in case binder (if two scores, it is the lower
score; if three scores it is the median score).
No FICO score;
Equals 1 if no FICO score was available for the borrower.
Borrower reserves;
Equals 1 if the borrower had less than 2 months of mortgage payment in
liquid assets after closing.
Front-end ratio;
Housing payments divided by income.
Seller-funded down payment assistance;
Equals 1 if the borrower received down payment assistance from a seller-
funded program[B].
Nonseller-funded down payment assistance;
Equals 1 if the borrower received down payment assistance from a source
other than a seller- funded program.
Underserved area;
Equals 1 if the home is in a census tract designated by HUD as
underserved.
Condominium;
Equals 1 if the loan is a 234(c) condominium loan.
First-time homebuyer;
Equals 1 if the borrower was flagged in HUD's database as a first-time
homebuyer.
LTV ratio;
The ratio of the original mortgage amount to the sales price of the
house.
15-year mortgage;
Equals 1 if the mortgage term is 25 years or less (mostly 15 year
terms).
Endorsed in fiscal year 2000;
Equals 1 if endorsed in fiscal year 2000.
Endorsed in fiscal year 2001;
Equals 1 if endorsed in fiscal year 2001.
House price appreciation rate;
Growth rate in the median price of existing housing, reduced by 0.5
percent per quarter to adjust for increasing quality of the housing
stock[C].
First 6 quarters;
Number of quarters since origination, up to 6.
Next 6 quarters;
Number of quarters since the sixth quarter after origination, up to 12.
Following quarters;
Number of quarters since the twelfth quarter after origination.
Adjustable Rate Mortgage (ARM);
Equals 1 if adjustable rate mortgage.
Atlanta MSA;
Equals 1 if in the Atlanta MSA sample.
Salt Lake City MSA;
Equals 1 if in the Salt Lake MSA sample.
Relatively high equity;
The ratio of the market value of the mortgage to the book value of the
mortgage, when greater than 1.2: measures the incentive of the borrower
to refinance the loan.
Relatively low equity;
The ratio of the market value of the mortgage to the book value of the
mortgage, when less than 1.2.
Initial interest rate;
The initial interest rate on the mortgage.
Original mortgage amount;
The balance of the mortgage at time of origination.
Source: GAO.
[A]GAO-01-460.
[B] In a small number of cases borrowers received both types of
assistance. In these cases, the record was assigned to the category
with the larger amount of assistance.
[C] Global Insights, Inc.
[End of table]
Specification of Delinquency and Claim Models:
The models we estimated used logistic regression to predict the
probability of a loan becoming seriously delinquent or resulting in a
claim on FHA's insurance coverage, as a function of credit score,
equity, and other variables. Equity and credit scores have consistently
been found to be important predictors of mortgage credit risk and some
studies have found that other variables, such as qualifying ratios, are
important.[Footnote 79] The dependent variable is the conditional
probability of a loan becoming 90 days delinquent, or resulting in a
claim, in a given quarter, conditional on the loan having survived
until that quarter.[Footnote 80]
We estimated the delinquency and claim regressions using both national
and MSA samples of loans. For each of these samples, we developed four
different delinquency regressions and four different claim regressions.
The first model used for delinquency and claim regressions we based on
the variables used in the FHA Technology Open to Approved Lenders
(TOTAL) Mortgage Scorecard (used by FHA's TOTAL Mortgage Scorecard
automated underwriting algorithm as predictors of credit risk). These
variables were initial LTV ratio, credit score, housing payment-to-
income ratio (the front-end ratio), borrower reserves, and mortgage
term (15-year or 30-year term). To these, we added variables for house
price appreciation, variables reflecting the passage of time, and
variables indicating the presence and source of down payment
assistance. For the second model, we augmented the model based on the
FHA TOTAL Mortgage Scorecard variables with indicators of whether the
mortgage was an adjustable rate mortgage, the property was located in
an underserved area, the property was a condominium, and the purchaser
was a first-time homebuyer. We based the third regression model on
GAO's model of FHA actuarial soundness that we estimated in
2001.[Footnote 81] That model used, among others, the initial LTV
ratio, loan type (30-year fixed, 15-year fixed, investor, or adjustable
rate mortgage), property type (one or multiple unit), Census division,
accumulated equity stemming from house price appreciation and
amortization, and a set of variables reflecting the passage of time, to
predict the annual probability of a loan terminating in a claim. We
created a variable called constructed risk, using the results of the
2001 actuarial study. Because that study used millions of loans in the
model estimation, its estimates of the effects of certain variables,
such as accumulated equity, may be more precise than those produced
using the thousands of loans in the Concentrance sample. However, the
actuarial study did not use credit score as a predictor variable or
consider down payment assistance. Therefore, we included the
constructed risk variable along with credit score information, borrower
reserves, front-end ratio, and presence and source of down payment
assistance. The fourth model augments GAO's actuarial model by adding
three variables: underserved area, condominium, and first-time
homebuyer. GAO estimated prepayments and losses twice, once in a
national sample, and once in a MSA sample.
The LTV ratio calculated from FHA's database will tend to understate
the true LTV ratio of the mortgage if homes with seller-funded down
payment assistance are sold for higher prices than are comparable homes
without such assistance.[Footnote 82] Comparable homes would have the
same value, yet the home purchased with assistance may have a larger
loan. For example, FHA regulations allow the borrower to take out a
mortgage for about $99,000 on a $100,000 home. With seller-funded down
payment assistance, the same home might sell for $103,000 and qualify
for a $102,000 loan.[Footnote 83] The calculated LTV ratio would be
about 99 percent in each case ($99,000/$100,000 or $102,000/$103,000),
but the transaction with seller-funded assistance would have a larger
mortgage, backed by the same collateral. In such cases, the initial LTV
ratio would be understated, the borrower's equity subsequent to
origination would be overstated, and the risk of delinquency or claim
for such loans should be higher than for loans with comparable LTV
ratios and subsequent price appreciation. To test for this possibility,
we included a variable, seller-funded down payment assistance, which
was set equal to 1 for loans that received seller-funded down payment
assistance. To test for the possibility that down payment assistance in
general, and not just seller-funded assistance, raised delinquency and
claim probabilities, we included a variable, nonseller-funded down
payment assistance, which was set equal to 1 for loans that received
down payment assistance from relatives, a borrower's employer,
government programs, nonprofits that were not seller-funded, or
nonprofits with a source of funding that was not ascertained.
Estimation Results:
Tables 10 through 17 present the estimation results for our 90-day
delinquency regressions, and tables 18 through 25 present the results
for our claim regressions for the national samples and MSA samples. Our
results are consistent with other research that finds credit scores and
accumulated equity to be important variables predicting delinquency and
claims.[Footnote 84] In specifications that use the constructed risk
variable (tables 12, 13, 16, 17, 20, 21, 24, and 25), we find it a
statistically significant predictor of delinquency or claim.
Additionally, credit score is highly significant. The front-end ratio,
which FHA uses in its underwriting, is also very important. Borrower
reserves, however, generally have the wrong sign, and are statistically
insignificant. In some specifications indicators for condominium loans,
for loans to first-time homebuyers, and for loans in underserved areas
are added, and they are also found to be insignificant. In
specifications that use TOTAL Mortgage Scorecard variables (tables 10,
11, 14, 15, 18, 19, 22, and 23), credit score has statistically
significant effect of the expected sign. The front-end ratio is also an
important predictor with the expected sign. Again reserves are not an
important predictor; neither are the 15-year loan indicator, the
initial LTV ratio, and indicators for condominiums or underserved
areas.
The failure to find a significant effect for short-term loans is not
surprising, as such loans constitute only about 1 percent of the loans
in each sample. The lack of a significant effect for LTV ratio is also
not surprising. The Concentrance samples are restricted to high-LTV
loans, and about 85 percent of loans in the sample had LTV ratios in a
very narrow range (98 to 100 percent). Over 99 percent of loans had LTV
ratios between 96 and 102 percent. The lack of variation in this
variable meant that the regression had little ability to identify its
effect.
The lack of a significant effect for reserves in the claim and
delinquency regressions is surprising. It may indicate that down
payment assistance alters the relationship between reserves and credit
risk. Without assistance, borrowers with substantial liquid assets may
have few reserves after a down payment is made. With assistance,
borrowers with substantial liquid assets may retain those assets by not
making a down payment with their own funds. If liquid assets are a
better measure of risk than are reserves, then reserves may be a less
useful risk indicator when substantial numbers of loans have down
payment assistance.
Delinquency Results:
In both the national and MSA samples, down payment assistance
substantially increased the likelihood of 90-day delinquency. Using the
augmented GAO actuarial model, results in the national sample indicated
that down payment assistance from a seller-funded nonprofit raised the
delinquency rate by 100 percent, compared with similar loans with no
assistance (table 12).[Footnote 85] Assistance from other sources
raised the delinquency rate by 20 percent, relative to similar loans
with no assistance. With the model based on the augmented TOTAL
Mortgage Scorecard variables, the results indicated that assistance
from a seller-funded nonprofit raised the delinquency rate by 93
percent, while assistance from other sources raised the delinquency
rate by 21 percent (table 10). The differences between loans with
seller-funded assistance and loans without it are significant with a
one-tailed test at a level of 1 percent in all variations of the model.
The differences between seller-funded assistance and assistance from
other sources were large and also significant at 1 percent in a one-
tailed test in all variations. Differences in delinquency rates in the
MSA sample were also substantial. Considering the augmented GAO
actuarial model, loans with seller-funded down payment assistance had
delinquency rates that were 105 percent higher than the delinquency
rates on comparable loans without assistance, while loans with
assistance from other sources had delinquency rates that were 34
percent higher than the delinquency rates of loans without assistance
(table 16). The differences between seller-funded assistance and no
assistance, and between seller-funded assistance and other assistance,
were both significant at 1 percent in one-tailed tests in all
variations.[Footnote 86]
Claim Results:
Down payment assistance also had a substantial impact on claims in both
the national and MSA samples. Results from the national sample using
the augmented GAO actuarial model indicated that assistance from a
seller-funded nonprofit raised the claim rate by 81 percent, relative
to similar loans with no assistance, as shown in the odds ratio point
estimate column of table 20.[Footnote 87] Assistance from other sources
raised the claim rate by 44 percent, relative to similar loans with no
down payment assistance. With the model based on the augmented TOTAL
Mortgage Scorecard variables, we found that assistance from a seller-
funded nonprofit raised the claim rate by 76 percent, while assistance
from other sources raised the claim rate by 49 percent (table 18). The
differences between loans with down payment assistance and those
without it were statistically significant with a one-tailed test at a
level of 1 percent. Seller-funded assistance had a larger impact on
claims than did assistance from other sources. Those differences, while
large, were not quite significant at conventional levels.[Footnote 88]
Differences in the MSA sample were even larger for seller-funded
nonprofit assistance. Using the GAO actuarial model, loans with seller-
funded down payment assistance had claim rates that were 134 percent
higher than the claim rates on comparable loans without assistance,
while loans with down payment assistance from other sources had claim
rates that were 24 percent higher than the claim rates on loans without
assistance (table 25). The difference between seller-funded assistance
and no assistance, and the difference between seller-funded assistance
and other assistance, were both significant at 1 percent in one-tailed
tests in all variations of the model.
Several explanations are possible for the increase in delinquency and
claim rates associated with down payment assistance from nonseller-
funded sources. It is possible that the gifts from relatives were
actually loans, despite the inclusion of a gift letter indicating that
repayment is not expected. In these cases, the LTV ratio would be
misstated, not because the collateral value was overstated, but because
the total amount of debt incurred in the transaction was understated.
It is also possible that borrowers who could save for a down payment
differed in key respects from borrowers who could not. For example,
some researchers have suggested that households may increase their
savings rates prior to purchasing a home.[Footnote 89] Others have
found evidence that young households increased their earnings and
savings by working more hours prior to purchasing their first
home.[Footnote 90] It may be the case that households that can more
easily increase earnings or reduce consumption in order to accumulate
savings enter homeownership when a down payment is required but that
both flexible and inflexible households purchase homes when no down
payment is required. The inclusion of households with less flexibility
would tend to increase delinquencies and claims.
While delinquency differences are about the same for the MSA sample and
the national sample, claim rate differences for seller-funded nonprofit
assistance are much larger in the MSA sample than they are in the
national sample. Research suggests that delinquencies are more likely
to cure, or to prepay, than to claim if the borrower is projected to
have accumulated equity.[Footnote 91] The rate of house price
appreciation in the national sample is much higher than in the MSA
samples, so that borrowers in the national sample would have
accumulated more equity. Over the 5-year period from the first quarter
of fiscal year 2000 to the last quarter of fiscal year 2004, the median
house price of existing houses increased 11 percent the Salt Lake City
MSA, 18 percent in the Indianapolis MSA, and 32 percent in the Atlanta
MSA. The median increase in the national sample was about 39 percent
and the mean increase was 51 percent. It is possible that substantial
house price appreciation in the national sample weakened the effect of
seller-funded down payment assistance on claims, as the assisted loans
that became delinquent were more likely to be resolved without a claim
in rapidly appreciating markets.
Table 10: Delinquency Regression Results--National Sample, Model Based
on Augmented TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 2.9662;
Analysis of maximum likelihood estimates: Standard error: 3.8624;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.4425;
Odds ratio estimates: Point estimate: [Empty].
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: -0.00214;
Analysis of maximum likelihood estimates: Standard error: 0.038;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.9551;
Odds ratio estimates: Point estimate: 0.998.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.096;
Analysis of maximum likelihood estimates: Standard error: 0.2587;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7105;
Odds ratio estimates: Point estimate: 1.101.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.0119;
Analysis of maximum likelihood estimates: Standard error: 0.000716;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.4789;
Odds ratio estimates: Point estimate: 1.065.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.477;
Analysis of maximum likelihood estimates: Standard error: 0.5467;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0069;
Odds ratio estimates: Point estimate: 4.38.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.1064;
Analysis of maximum likelihood estimates: Standard error: 0.1047;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3096;
Odds ratio estimates: Point estimate: 0.899.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.0332;
Analysis of maximum likelihood estimates: Standard error: 0.0979;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7346;
Odds ratio estimates: Point estimate: 0.967.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: - 0.3078;
Analysis of maximum likelihood estimates: Standard error: 0.1678;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0667;
Odds ratio estimates: Point estimate: 0.735.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.0703;
Analysis of maximum likelihood estimates: Standard error: 0.0785;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3706;
Odds ratio estimates: Point estimate: 1.073.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: -0.2547;
Analysis of maximum likelihood estimates: Standard error: 0.1843;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1669;
Odds ratio estimates: Point estimate: 0.775.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.0448;
Analysis of maximum likelihood estimates: Standard error: 0.1064;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6736;
Odds ratio estimates: Point estimate: 0.956.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.6583;
Analysis of maximum likelihood estimates: Standard error: 0.1111;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.041;
Odds ratio estimates: Point estimate: 1.211.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: -0.9398;
Analysis of maximum likelihood estimates: Standard error: 0.7716;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2232;
Odds ratio estimates: Point estimate: 0.391.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.1997;
Analysis of maximum likelihood estimates: Standard error: 0.0259;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.9698;
Odds ratio estimates: Point estimate: 1.002.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: 0.0558;
Analysis of maximum likelihood estimates: Standard error: 0.0496;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2603;
Odds ratio estimates: Point estimate: 1.057.
Source: GAO.
[End of table]
Table 11: Delinquency Regression Results--National Sample, Model Based
on TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 0.3717;
Analysis of maximum likelihood estimates: Standard error: 3.7917;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.9219;
Odds ratio estimates: Point estimate: [Empty].
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: 0.0249;
Analysis of maximum likelihood estimates: Standard error: 0.037;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.4997;
Odds ratio estimates: Point estimate: 1.025.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.1153;
Analysis of maximum likelihood estimates: Standard error: 0.2585;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6555;
Odds ratio estimates: Point estimate: 1.122.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.012;
Analysis of maximum likelihood estimates: Standard error: 0.000714;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.5414;
Odds ratio estimates: Point estimate: 1.056.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.4461;
Analysis of maximum likelihood estimates: Standard error: 0.5442;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0079;
Odds ratio estimates: Point estimate: 4.246.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.1498;
Analysis of maximum likelihood estimates: Standard error: 0.1039;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1493;
Odds ratio estimates: Point estimate: 0.861.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.0351;
Analysis of maximum likelihood estimates: Standard error: 0.0979;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7197;
Odds ratio estimates: Point estimate: 0.965.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.6384;
Analysis of maximum likelihood estimates: Standard error: 0.1101;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0405;
Odds ratio estimates: Point estimate: 1.211.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: -1.0039;
Analysis of maximum likelihood estimates: Standard error: 0.7676;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.191;
Odds ratio estimates: Point estimate: 0.366.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.1994;
Analysis of maximum likelihood estimates: Standard error: 0.0259;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.9856;
Odds ratio estimates: Point estimate: 1.001.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: 0.0563;
Analysis of maximum likelihood estimates: Standard error: 0.0497;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.257;
Odds ratio estimates: Point estimate: 1.058.
Source: GAO.
[End of table]
Table 12: Delinquency Regression Results--National Sample, Augmented
GAO Actuarial Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 1.8293;
Analysis of maximum likelihood estimates: Standard error: 0.498;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0002;
Odds ratio estimates: Point estimate: .
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.1162;
Analysis of maximum likelihood estimates: Standard error: 0.0175;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.5943;
Odds ratio estimates: Point estimate: 1.049.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.2325;
Analysis of maximum likelihood estimates: Standard error: 0.5399;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0224;
Odds ratio estimates: Point estimate: 3.43.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.0415;
Analysis of maximum likelihood estimates: Standard error: 0.0783;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5961;
Odds ratio estimates: Point estimate: 1.042.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: -0.2416;
Analysis of maximum likelihood estimates: Standard error: 0.1713;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1584;
Odds ratio estimates: Point estimate: 0.785.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.047;
Analysis of maximum likelihood estimates: Standard error: 0.1062;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6583;
Odds ratio estimates: Point estimate: 0.954.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.6961;
Analysis of maximum likelihood estimates: Standard error: 0.1086;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0484;
Odds ratio estimates: Point estimate: 1.202.
Source: GAO.
[End of table]
Table 13: Delinquency Regression Results--National Sample, GAO
Actuarial Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 1.8124;
Analysis of maximum likelihood estimates: Standard error: 0.4868;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0002;
Odds ratio estimates: Point estimate: [Empty].
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.118;
Analysis of maximum likelihood estimates: Standard error: 0.0174;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.615;
Odds ratio estimates: Point estimate: 1.046.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.191;
Analysis of maximum likelihood estimates: Standard error: 0.5363;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0264;
Odds ratio estimates: Point estimate: 3.29.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.6979;
Analysis of maximum likelihood estimates: Standard error: 0.1083;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0483;
Odds ratio estimates: Point estimate: 1.201.
Source: GAO.
[End of table]
Table 14: Delinquency Regression Results--MSA Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -8.4601;
Analysis of maximum likelihood estimates: Standard error: 8.0246;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2918;
Odds ratio estimates: Point estimate: [Empty].
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: 0.0457;
Analysis of maximum likelihood estimates: Standard error: 0.079;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5634;
Odds ratio estimates: Point estimate: 1.047.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.2383;
Analysis of maximum likelihood estimates: Standard error: 0.5188;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6461;
Odds ratio estimates: Point estimate: 1.269.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.011;
Analysis of maximum likelihood estimates: Standard error: 0.000826;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0014;
Odds ratio estimates: Point estimate: 1.585.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.0184;
Analysis of maximum likelihood estimates: Standard error: 0.1163;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8742;
Odds ratio estimates: Point estimate: 0.982.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 2.2265;
Analysis of maximum likelihood estimates: Standard error: 0.672;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0009;
Odds ratio estimates: Point estimate: 9.268.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.2113;
Analysis of maximum likelihood estimates: Standard error: 0.1344;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.116;
Odds ratio estimates: Point estimate: 0.81.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.0661;
Analysis of maximum likelihood estimates: Standard error: 0.113;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5586;
Odds ratio estimates: Point estimate: 0.936.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: - 0.0869;
Analysis of maximum likelihood estimates: Standard error: 0.1367;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5249;
Odds ratio estimates: Point estimate: 0.917.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.1458;
Analysis of maximum likelihood estimates: Standard error: 0.0918;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1124;
Odds ratio estimates: Point estimate: 1.157.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: 0.3403;
Analysis of maximum likelihood estimates: Standard error: 0.2298;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1387;
Odds ratio estimates: Point estimate: 1.405.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.1141;
Analysis of maximum likelihood estimates: Standard error: 0.1258;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3643;
Odds ratio estimates: Point estimate: 0.892.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.741;
Analysis of maximum likelihood estimates: Standard error: 0.1146;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0224;
Odds ratio estimates: Point estimate: 1.36.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.1697;
Analysis of maximum likelihood estimates: Standard error: 0.1149;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1399;
Odds ratio estimates: Point estimate: 0.844.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.2951;
Analysis of maximum likelihood estimates: Standard error: 0.1265;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0197;
Odds ratio estimates: Point estimate: 1.343.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: 4.9561;
Analysis of maximum likelihood estimates: Standard error: 2.2367;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0267;
Odds ratio estimates: Point estimate: 142.033.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.2025;
Analysis of maximum likelihood estimates: Standard error: 0.0294;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.5256;
Odds ratio estimates: Point estimate: 1.038.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.0242;
Analysis of maximum likelihood estimates: Standard error: 0.0626;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6988;
Odds ratio estimates: Point estimate: 0.976.
Source: GAO.
[End of table]
Table 15: Delinquency Regression Results--MSA Sample, Model Based on
TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -4.3569;
Analysis of maximum likelihood estimates: Standard error: 5.0712;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3903;
Odds ratio estimates: Point estimate: [Empty] .
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: 0.00335;
Analysis of maximum likelihood estimates: Standard error: 0.0465;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.9425;
Odds ratio estimates: Point estimate: 1.003.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.2403;
Analysis of maximum likelihood estimates: Standard error: 0.5184;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.643;
Odds ratio estimates: Point estimate: 1.272.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.0109;
Analysis of maximum likelihood estimates: Standard error: 0.000822;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0011;
Odds ratio estimates: Point estimate: 1.589.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.0185;
Analysis of maximum likelihood estimates: Standard error: 0.1164;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8735;
Odds ratio estimates: Point estimate: 0.982.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 2.1509;
Analysis of maximum likelihood estimates: Standard error: 0.6709;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0013;
Odds ratio estimates: Point estimate: 8.593.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.1969;
Analysis of maximum likelihood estimates: Standard error: 0.1292;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1273;
Odds ratio estimates: Point estimate: 0.821.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.0439;
Analysis of maximum likelihood estimates: Standard error: 0.1114;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6936;
Odds ratio estimates: Point estimate: 0.957.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.7357;
Analysis of maximum likelihood estimates: Standard error: 0.1138;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0214;
Odds ratio estimates: Point estimate: 1.362.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.1443;
Analysis of maximum likelihood estimates: Standard error: 0.114;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2054;
Odds ratio estimates: Point estimate: 0.866.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.3253;
Analysis of maximum likelihood estimates: Standard error: 0.1244;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0089;
Odds ratio estimates: Point estimate: 1.384.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: 4.9592;
Analysis of maximum likelihood estimates: Standard error: 2.2289;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0261;
Odds ratio estimates: Point estimate: 142.478.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.2026;
Analysis of maximum likelihood estimates: Standard error: 0.0294;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.5197;
Odds ratio estimates: Point estimate: 1.039.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.0256;
Analysis of maximum likelihood estimates: Standard error: 0.0628;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6838;
Odds ratio estimates: Point estimate: 0.975.
Source: GAO.
[End of table]
Table 16: Delinquency Regression Results--MSA Sample, Augmented GAO
Actuarial Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 1.0815;
Analysis of maximum likelihood estimates: Standard error: 0.5621;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0543;
Odds ratio estimates: Point estimate: [Empty].
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.1411;
Analysis of maximum likelihood estimates: Standard error: 0.0239;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.0016;
Odds ratio estimates: Point estimate: 1.568.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.0195;
Analysis of maximum likelihood estimates: Standard error: 0.1159;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8666;
Odds ratio estimates: Point estimate: 0.981.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 2.1455;
Analysis of maximum likelihood estimates: Standard error: 0.6696;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0014;
Odds ratio estimates: Point estimate: 8.546.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.1265;
Analysis of maximum likelihood estimates: Standard error: 0.0914;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1665;
Odds ratio estimates: Point estimate: 1.135.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: 0.3149;
Analysis of maximum likelihood estimates: Standard error: 0.1905;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0983;
Odds ratio estimates: Point estimate: 1.37.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.1261;
Analysis of maximum likelihood estimates: Standard error: 0.1256;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3152;
Odds ratio estimates: Point estimate: 0.882.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.719;
Analysis of maximum likelihood estimates: Standard error: 0.1125;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0289;
Odds ratio estimates: Point estimate: 1.341.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.1538;
Analysis of maximum likelihood estimates: Standard error: 0.1071;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1508;
Odds ratio estimates: Point estimate: 0.857.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.1268;
Analysis of maximum likelihood estimates: Standard error: 0.1222;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2991;
Odds ratio estimates: Point estimate: 1.135.
Source: GAO.
[End of table]
Table 17: Delinquency Regression Results--MSA Sample, GAO Actuarial
Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 0.987;
Analysis of maximum likelihood estimates: Standard error: 0.5534;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0745;
Odds ratio estimates: Point estimate: [Empty].
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.1419;
Analysis of maximum likelihood estimates: Standard error: 0.0238;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.0009;
Odds ratio estimates: Point estimate: 1.554.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.017;
Analysis of maximum likelihood estimates: Standard error: 0.1158;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8831;
Odds ratio estimates: Point estimate: 0.983.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 2.0408;
Analysis of maximum likelihood estimates: Standard error: 0.6682;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0023;
Odds ratio estimates: Point estimate: 7.697.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.7131;
Analysis of maximum likelihood estimates: Standard error: 0.1118;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0289;
Odds ratio estimates: Point estimate: 1.34.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.131;
Analysis of maximum likelihood estimates: Standard error: 0.1065;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2185;
Odds ratio estimates: Point estimate: 0.877.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.1711;
Analysis of maximum likelihood estimates: Standard error: 0.1203;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1549;
Odds ratio estimates: Point estimate: 1.187.
Source: GAO.
[End of table]
Table 18: Claim regression results - National Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 4.6847;
Analysis of maximum likelihood estimates: Standard error: 4.4388;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2912;
Odds ratio estimates: Point estimate: .
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: -0.0575;
Analysis of maximum likelihood estimates: Standard error: 0.0431;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1816;
Odds ratio estimates: Point estimate: 0.944.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.4688;
Analysis of maximum likelihood estimates: Standard error: 0.3668;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2012;
Odds ratio estimates: Point estimate: 1.598.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.00926;
Analysis of maximum likelihood estimates: Standard error: 0.00116;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0002;
Odds ratio estimates: Point estimate: 2.069.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.0933;
Analysis of maximum likelihood estimates: Standard error: 0.1558;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5492;
Odds ratio estimates: Point estimate: 0.911.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 2.1398;
Analysis of maximum likelihood estimates: Standard error: 0.8949;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0168;
Odds ratio estimates: Point estimate: 8.498.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: 0.0121;
Analysis of maximum likelihood estimates: Standard error: 0.1814;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.9468;
Odds ratio estimates: Point estimate: 1.012.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: 0.1217;
Analysis of maximum likelihood estimates: Standard error: 0.1696;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.473;
Odds ratio estimates: Point estimate: 1.129.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: - 0.7761;
Analysis of maximum likelihood estimates: Standard error: 0.345;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0245;
Odds ratio estimates: Point estimate: 0.46.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.0268;
Analysis of maximum likelihood estimates: Standard error: 0.1304;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.837;
Odds ratio estimates: Point estimate: 1.027.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: -0.3245;
Analysis of maximum likelihood estimates: Standard error: 0.3088;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2933;
Odds ratio estimates: Point estimate: 0.723.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.3168;
Analysis of maximum likelihood estimates: Standard error: 0.1663;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0567;
Odds ratio estimates: Point estimate: 0.728.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.5664;
Analysis of maximum likelihood estimates: Standard error: 0.1924;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0032;
Odds ratio estimates: Point estimate: 1.762.
Parameter: Nonseller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.3995;
Analysis of maximum likelihood estimates: Standard error: 0.148;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.007;
Odds ratio estimates: Point estimate: 1.491.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: -1.6943;
Analysis of maximum likelihood estimates: Standard error: 1.0614;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1104;
Odds ratio estimates: Point estimate: 0.184.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.448;
Analysis of maximum likelihood estimates: Standard error: 0.0545;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0333;
Odds ratio estimates: Point estimate: 1.125.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: 0.0879;
Analysis of maximum likelihood estimates: Standard error: 0.0543;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1052;
Odds ratio estimates: Point estimate: 1.092.
Source: GAO.
[End of table]
Table 19: Claim Regression Results--National Sample, Model Based on
TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: 3.0763;
Analysis of maximum likelihood estimates: Standard error: 5.0183;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5399;
Odds ratio estimates: Point estimate: .
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: -0.0413;
Analysis of maximum likelihood estimates: Standard error: 0.0488;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.398;
Odds ratio estimates: Point estimate: 0.96.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.5144;
Analysis of maximum likelihood estimates: Standard error: 0.3667;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1607;
Odds ratio estimates: Point estimate: 1.673.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.00929;
Analysis of maximum likelihood estimates: Standard error: 0.00116;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.4108;
Odds ratio estimates: Point estimate: 0.88.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.9601;
Analysis of maximum likelihood estimates: Standard error: 0.8969;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0288;
Odds ratio estimates: Point estimate: 7.1.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.0442;
Analysis of maximum likelihood estimates: Standard error: 0.181;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.807;
Odds ratio estimates: Point estimate: 0.957.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: 0.1316;
Analysis of maximum likelihood estimates: Standard error: 0.1698;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.4384;
Odds ratio estimates: Point estimate: 1.141.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.5012;
Analysis of maximum likelihood estimates: Standard error: 0.1904;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0085;
Odds ratio estimates: Point estimate: 1.651.
Parameter: Nonseller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.3786;
Analysis of maximum likelihood estimates: Standard error: 0.1475;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0102;
Odds ratio estimates: Point estimate: 1.46.
Parameter: House price appreciation rate;
Analysis of maximum likelihood estimates: Estimate: -1.8949;
Analysis of maximum likelihood estimates: Standard error: 1.0561;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0728;
Odds ratio estimates: Point estimate: 0.15.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.4486;
Analysis of maximum likelihood estimates: Standard error: 0.0545;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.032;
Odds ratio estimates: Point estimate: 1.126.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: 0.0863;
Analysis of maximum likelihood estimates: Standard error: 0.0543;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1118;
Odds ratio estimates: Point estimate: 1.09.
Source: GAO.
[End of table]
Table 20: Claim Regression Results--National Sample, Augmented GAO
Actuarial Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -2.2855;
Analysis of maximum likelihood estimates: Standard error: 0.8291;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0058;
Odds ratio estimates: Point estimate: [Empty].
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.2665;
Analysis of maximum likelihood estimates: Standard error: 0.0244;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.3674;
Odds ratio estimates: Point estimate: 0.869.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.8786;
Analysis of maximum likelihood estimates: Standard error: 0.8691;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0307;
Odds ratio estimates: Point estimate: 6.544.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: -0.0771;
Analysis of maximum likelihood estimates: Standard error: 0.1308;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5559;
Odds ratio estimates: Point estimate: 0.926.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: -0.2178;
Analysis of maximum likelihood estimates: Standard error: 0.2986;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.4659;
Odds ratio estimates: Point estimate: 0.804.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.2937;
Analysis of maximum likelihood estimates: Standard error: 0.1662;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0771;
Odds ratio estimates: Point estimate: 0.745.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.5947;
Analysis of maximum likelihood estimates: Standard error: 0.1887;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0016;
Odds ratio estimates: Point estimate: 1.812.
Parameter: Nonseller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.3641;
Analysis of maximum likelihood estimates: Standard error: 0.1483;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0141;
Odds ratio estimates: Point estimate: 1.439.
Source: GAO.
[End of table]
Table 21: Claim Regression Results--National Sample, GAO Actuarial
Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -2.6245;
Analysis of maximum likelihood estimates: Standard error: 0.8108;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0012;
Odds ratio estimates: Point estimate: .
Parameter: Constructed risk;
Analysis of maximum likelihood estimates: Estimate: 0.2656;
Analysis of maximum likelihood estimates: Standard error: 0.0242;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: 0.0002;
Odds ratio estimates: Point estimate: 2.049.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: -0.1575;
Analysis of maximum likelihood estimates: Standard error: 0.1555;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3111;
Odds ratio estimates: Point estimate: 0.854.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.7053;
Analysis of maximum likelihood estimates: Standard error: 0.8705;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0501;
Odds ratio estimates: Point estimate: 5.503.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.5894;
Analysis of maximum likelihood estimates: Standard error: 0.1878;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0017;
Odds ratio estimates: Point estimate: 1.803.
Parameter: Nonseller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.3443;
Analysis of maximum likelihood estimates: Standard error: 0.1477;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0197;
Odds ratio estimates: Point estimate: 1.411.
Source: GAO.
[End of table]
Table 22: Claim Regression Results--MSA Sample, Model Based on
Augmented TOTAL Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -20.5482;
Analysis of maximum likelihood estimates: Standard error: 9.2777;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0268;
Odds ratio estimates: Point estimate: [Empty].
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: 0.0309;
Analysis of maximum likelihood estimates: Standard error: 0.0906;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7334;
Odds ratio estimates: Point estimate: 1.031.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.5153;
Analysis of maximum likelihood estimates: Standard error: 0.6032;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.393;
Odds ratio estimates: Point estimate: 1.674.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.00643;
Analysis of maximum likelihood estimates: Standard error: 0.00108;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0005;
Odds ratio estimates: Point estimate: 1.83.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: 0.179;
Analysis of maximum likelihood estimates: Standard error: 0.1498;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2322;
Odds ratio estimates: Point estimate: 1.196.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.3785;
Analysis of maximum likelihood estimates: Standard error: 0.9056;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.128;
Odds ratio estimates: Point estimate: 3.969.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.6808;
Analysis of maximum likelihood estimates: Standard error: 0.1897;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0003;
Odds ratio estimates: Point estimate: 0.506.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.1985;
Analysis of maximum likelihood estimates: Standard error: 0.1533;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1954;
Odds ratio estimates: Point estimate: 0.82.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: - 0.3282;
Analysis of maximum likelihood estimates: Standard error: 0.1857;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0771;
Odds ratio estimates: Point estimate: 0.72.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.1533;
Analysis of maximum likelihood estimates: Standard error: 0.1218;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2083;
Odds ratio estimates: Point estimate: 1.166.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: 0.0761;
Analysis of maximum likelihood estimates: Standard error: 0.2989;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.799;
Odds ratio estimates: Point estimate: 1.079.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.0626;
Analysis of maximum likelihood estimates: Standard error: 0.1733;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7179;
Odds ratio estimates: Point estimate: 0.939.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.9768;
Analysis of maximum likelihood estimates: Standard error: 0.1576;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0457;
Odds ratio estimates: Point estimate: 1.451.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.5987;
Analysis of maximum likelihood estimates: Standard error: 0.1764;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0007;
Odds ratio estimates: Point estimate: 0.55.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.7624;
Analysis of maximum likelihood estimates: Standard error: 0.1591;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 999.999.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.4356;
Analysis of maximum likelihood estimates: Standard error: 0.0503;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0015;
Odds ratio estimates: Point estimate: 1.177.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.00873;
Analysis of maximum likelihood estimates: Standard error: 0.0535;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8704;
Odds ratio estimates: Point estimate: 0.991.
Source: GAO.
[End of table]
Table 23: Claim Regression Results--MSA Sample, Model Based on TOTAL
Mortgage Scorecard Variables:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -18.9754;
Analysis of maximum likelihood estimates: Standard error: 7.322;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0096;
Odds ratio estimates: Point estimate: .
Parameter: LTV ratio;
Analysis of maximum likelihood estimates: Estimate: 0.018;
Analysis of maximum likelihood estimates: Standard error: 0.0691;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.7941;
Odds ratio estimates: Point estimate: 1.018.
Parameter: 15-year mortgage;
Analysis of maximum likelihood estimates: Estimate: 0.5857;
Analysis of maximum likelihood estimates: Standard error: 0.6014;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.3301;
Odds ratio estimates: Point estimate: 1.796.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: -0.00645;
Analysis of maximum likelihood estimates: Standard error: 0.00108;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0002;
Odds ratio estimates: Point estimate: 1.897.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: 0.191;
Analysis of maximum likelihood estimates: Standard error: 0.1499;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2027;
Odds ratio estimates: Point estimate: 1.21.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.3525;
Analysis of maximum likelihood estimates: Standard error: 0.9035;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1344;
Odds ratio estimates: Point estimate: 3.867.
Parameter: Endorsed in fiscal year 2000;
Analysis of maximum likelihood estimates: Estimate: -0.6919;
Analysis of maximum likelihood estimates: Standard error: 0.1865;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0002;
Odds ratio estimates: Point estimate: 0.501.
Parameter: Endorsed in fiscal year 2001;
Analysis of maximum likelihood estimates: Estimate: -0.1672;
Analysis of maximum likelihood estimates: Standard error: 0.1517;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2703;
Odds ratio estimates: Point estimate: 0.846.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.9732;
Analysis of maximum likelihood estimates: Standard error: 0.1569;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0426;
Odds ratio estimates: Point estimate: 1.459.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.5566;
Analysis of maximum likelihood estimates: Standard error: 0.1748;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0014;
Odds ratio estimates: Point estimate: 0.573.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.765;
Analysis of maximum likelihood estimates: Standard error: 0.1571;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 999.999.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.4345;
Analysis of maximum likelihood estimates: Standard error: 0.0503;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0016;
Odds ratio estimates: Point estimate: 1.176.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.00953;
Analysis of maximum likelihood estimates: Standard error: 0.0536;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.8589;
Odds ratio estimates: Point estimate: 0.991.
Source: GAO.
[End of table]
Table 24: Claim Regression Results--MSA Sample, Augmented GAO Actuarial
Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -4.3382;
Analysis of maximum likelihood estimates: Standard error: 0.7653;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.0018;
Odds ratio estimates: Point estimate: 1.715.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: 0.1587;
Analysis of maximum likelihood estimates: Standard error: 0.1491;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2872;
Odds ratio estimates: Point estimate: 1.172.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.1872;
Analysis of maximum likelihood estimates: Standard error: 0.9057;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1899;
Odds ratio estimates: Point estimate: 3.278.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: 0.0986;
Analysis of maximum likelihood estimates: Standard error: 0.1218;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.4181;
Odds ratio estimates: Point estimate: 1.104.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: 0.1499;
Analysis of maximum likelihood estimates: Standard error: 0.2587;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.5625;
Odds ratio estimates: Point estimate: 1.162.
Parameter: First-time homebuyer;
Analysis of maximum likelihood estimates: Estimate: -0.0842;
Analysis of maximum likelihood estimates: Standard error: 0.1732;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.6267;
Odds ratio estimates: Point estimate: 0.919.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.8555;
Analysis of maximum likelihood estimates: Standard error: 0.154;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.2488;
Odds ratio estimates: Point estimate: 1.243.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.4073;
Analysis of maximum likelihood estimates: Standard error: 0.1515;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0072;
Odds ratio estimates: Point estimate: 0.665.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.3428;
Analysis of maximum likelihood estimates: Standard error: 0.1506;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0229;
Odds ratio estimates: Point estimate: 1.409.
Source: GAO.
[End of table]
Table 25: Claim Regression Results--MSA Sample, GAO Actuarial Model:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -4.3714;
Analysis of maximum likelihood estimates: Standard error: 0.7543;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.0014;
Odds ratio estimates: Point estimate: 1.72.
Parameter: Borrower reserves;
Analysis of maximum likelihood estimates: Estimate: 0.1634;
Analysis of maximum likelihood estimates: Standard error: 0.1486;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2716;
Odds ratio estimates: Point estimate: 1.177.
Parameter: Front-end ratio;
Analysis of maximum likelihood estimates: Estimate: 1.12;
Analysis of maximum likelihood estimates: Standard error: 0.9029;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.2148;
Odds ratio estimates: Point estimate: 3.065.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: 0.8486;
Analysis of maximum likelihood estimates: Standard error: 0.153;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.2518;
Odds ratio estimates: Point estimate: 1.24.
Parameter: Atlanta MSA;
Analysis of maximum likelihood estimates: Estimate: -0.3964;
Analysis of maximum likelihood estimates: Standard error: 0.1512;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0087;
Odds ratio estimates: Point estimate: 0.673.
Parameter: Salt Lake City MSA;
Analysis of maximum likelihood estimates: Estimate: 0.3626;
Analysis of maximum likelihood estimates: Standard error: 0.1488;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0148;
Odds ratio estimates: Point estimate: 1.437.
Source: GAO.
[End of table]
Prepayment Model:
Modeling conditional claim rates has a substantial advantage: It allows
time-varying covariates such as post-origination increases in house
prices to be incorporated into the regression model. But the use of
conditional claim rates also poses one possible disadvantage. If
certain borrowers, such as recipients of seller-funded assistance, had
high rates of prepayment, their conditional claim rates could be high
not because they had higher credit risk but because a small number of
loans survived and eventually went to claim. That is, the hazard rate
would be large because the denominator was small, not because the
numerator was large. To examine this possibility, we used a logistic
regression that predicted the quarterly conditional probability of
prepayment to estimate the competing risk of loans terminating in
prepayment. The results are presented in tables 26 and 27.
The regressions used as explanatory variables two variables that
represent the incentive to refinance--the ratio of the book value of
the mortgage to the value of the mortgage payments evaluated at
currently prevailing interest rates, split into two segments. One
segment represented book value exceeding market value, the other
represented book value that was less than market value. Additionally,
the regression used variables that measured the passage of time, the
constructed risk variable, credit scores, and indicators for down
payment assistance. Results were as expected. Loans with an incentive
to refinance that was driven by the interest rate had significantly
higher rates of prepayment. High-risk loans and those with low credit
scores prepaid more slowly. We also found that loans with seller-funded
assistance prepaid more slowly than comparable loans without
assistance, demonstrating that our estimate of the effect of assistance
on loan performance was not inflated by rapid prepayment in this group
of loans.
Table 26: Prepayment Regression Results--Quarterly Conditional
Probability of Prepayment, National Sample:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -15.0802;
Analysis of maximum likelihood estimates: Standard error: 0.7199;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.0911;
Odds ratio estimates: Point estimate: 0.977.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: 0.00374;
Analysis of maximum likelihood estimates: Standard error: 0.000293;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0008;
Odds ratio estimates: Point estimate: 0.792.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: 0.6987;
Analysis of maximum likelihood estimates: Standard error: 0.0853;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0005;
Odds ratio estimates: Point estimate: 1.238.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: -0.1744;
Analysis of maximum likelihood estimates: Standard error: 0.0365;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0068;
Odds ratio estimates: Point estimate: 0.887.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: -0.2284;
Analysis of maximum likelihood estimates: Standard error: 0.0641;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0004;
Odds ratio estimates: Point estimate: 0.796.
Parameter: Nonseller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: -0.0562;
Analysis of maximum likelihood estimates: Standard error: 0.0412;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.173;
Odds ratio estimates: Point estimate: 0.945.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.2094;
Analysis of maximum likelihood estimates: Standard error: 0.0146;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0461;
Odds ratio estimates: Point estimate: 0.954.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.049;
Analysis of maximum likelihood estimates: Standard error: 0.0243;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.044;
Odds ratio estimates: Point estimate: 0.952.
Source: GAO.
[End of table]
Table 27: Prepayment Regression Results--Quarterly Conditional
Probability of Prepayment, MSA Sample:
Parameter: Intercept;
Analysis of maximum likelihood estimates: Estimate: -16.4562;
Analysis of maximum: Standard Error: 0.8684;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: ChiSq: ChiSq: 0.4469;
Odds ratio estimates: Point estimate: 1.018.
Parameter: FICO score;
Analysis of maximum likelihood estimates: Estimate: 0.00527;
Analysis of maximum: Standard Error: 0.000391;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0002;
Odds ratio estimates: Point estimate: 0.721.
Parameter: ARM;
Analysis of maximum likelihood estimates: Estimate: 0.3858;
Analysis of maximum: Standard Error: 0.1059;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0003;
Odds ratio estimates: Point estimate: 1.471.
Parameter: Condominium;
Analysis of maximum likelihood estimates: Estimate: -0.1332;
Analysis of maximum: Standard Error: 0.0929;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.1514;
Odds ratio estimates: Point estimate: 0.875.
Parameter: Underserved area;
Analysis of maximum likelihood estimates: Estimate: -0.2159;
Analysis of maximum: Standard Error: 0.0486;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.0745;
Odds ratio estimates: Point estimate: 1.116.
Parameter: Seller-funded down payment assistance;
Analysis of maximum likelihood estimates: Estimate: -0.2208;
Analysis of maximum: Standard Error: 0.0556;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.2689;
Odds ratio estimates: Point estimate: 1.066.
Parameter: First 6 quarters;
Analysis of maximum likelihood estimates: Estimate: 0.1487;
Analysis of maximum: Standard Error: 0.0193;
Analysis of maximum likelihood estimates: Pr > ChiSq: ChiSq: 0.3256;
Odds ratio estimates: Point estimate: 0.965.
Parameter: Following quarters;
Analysis of maximum likelihood estimates: Estimate: -0.1246;
Analysis of maximum: Standard Error: 0.0404;
Analysis of maximum likelihood estimates: Pr > ChiSq: 0.0021;
Odds ratio estimates: Point estimate: 0.883.
Source: GAO.
[End of table]
Loss Given Default Model:
We also examined the severity of the loss for loans that resulted in a
claim. The results of this analysis are limited because FHA's Single-
Family Data Warehouse had profit or loss amounts for only 389
loans.[Footnote 92] We ran a regression to predict the loss rate,
defined as the profit or loss amount divided by the original mortgage
amount. Explanatory variables included the initial LTV ratio, credit
score, initial interest rate, original mortgage amount, house price
appreciation since time of origination, and indicators for whether the
loan had seller-funded nonprofit down payment assistance, assistance
from another source, or no assistance. The results of this analysis are
in tables 28 and 29.
In the national sample, loans with seller-funded nonprofit assistance
had loss rates that were about 5 percentage points worse than those for
loans with no assistance. Loans with assistance from other sources had
loss rates about 2 percentage points better. Neither result was
significant. In the MSA sample, loans with seller-funded nonprofit
assistance also had loss rates about 5 percentage points worse, while
loans with assistance from other sources had loss rates about 7
percentage points worse. Both were significant in a one-tailed test.
Table 28: Loss Regression Results--Loss Rate Given Default, National
Sample:
Variable: Intercept;
Parameter estimate: 0.41124;
t Value: 0.22;
Pr > |t|: 0.8259.
Variable: LTV ratio;
Parameter estimate: -0.01548;
t Value: -0.79;
Pr > |t|: 0.4308.
Variable: Seller-funded down payment assistance;
Parameter estimate: - 0.04978;
t Value: -1.08;
Pr > |t|: 0.2828.
Variable: Nonseller-funded down payment assistance;
Parameter estimate: 0.02139;
t Value: 0.61;
Pr > |t|: 0.5417.
Variable: FICO score;
Parameter estimate: 0.00023796;
t Value: 0.82;
Pr > |t|: 0.4147.
Variable: No FICO score;
Parameter estimate: -0.01532;
t Value: -0.32;
Pr > |t|: 0.7456.
Variable: House price appreciation rate;
Parameter estimate: 0.66013;
t Value: 2.17;
Pr > |t|: 0.0312.
Variable: Initial interest rate;
Parameter estimate: -0.03729;
t Value:
-1.91;
Pr > |t|: 0.0583.
Variable: Original mortgage amount;
Parameter estimate: 0.00000218;
t Value: 5.11;
Pr > |t|: |t|: 0.9911.
Variable: LTV ratio;
Parameter estimate: -0.0251;
t Value: -1.32;
Pr > |t|: 0.1895.
Variable: Seller-funded down payment assistance;
Parameter estimate: - 0.05107;
t Value: -1.78;
Pr > |t|: 0.0769.
Variable: Nonseller-funded down payment assistance;
Parameter estimate: -0.0698;
t Value: -2.05;
Pr > |t|: 0.0416.
Variable: FICO score;
Parameter estimate: 0.00027289;
t Value: 1.11;
Pr > |t|: 0.2703.
Variable: No FICO score;
Parameter estimate: 0.02254;
t Value: 0.72;
Pr > |t|: 0.4743.
Variable: House price appreciation rate;
Parameter estimate: 1.54727;
t Value: 3.41;
Pr > |t|: 0.0008.
Variable: Initial interest rate;
Parameter estimate: 0.0048;
t Value: 0.35;
Pr > |t|: 0.7261.
Variable: Original mortgage amount;
Parameter estimate: 0.00000261;
t Value: 5.44;
Pr > |t|:
