Staff Reports
Long-Term Outcomes of FHA First-Time Homebuyers
Number 839
February 2018

JEL classification: G21, G28, R31

Authors: Donghoon Lee and Joseph Tracy

The Federal Housing Administration (FHA) has stated that its goal is to foster sustainable homeownership. In this paper, we propose some metrics for evaluating the degree to which the FHA is attaining this goal for first-time homebuyers. This work uses New York Fed Consumer Credit Panel data to examine the long-term outcome for households that make the transition from renting to owning using an FHA-insured mortgage. In addition to calculating the fraction of these borrowers whose FHA homeownership experience ends in default, we measure the degree to which these borrowers successfully remain homeowners after paying off their credit risk to the FHA. For the 2001 and 2002 cohorts, which were less impacted by the financial crisis than later cohorts, we find that 12 percent had their homeownership experience end in default while around 55 percent sustained their homeownership without the need for an FHA mortgage. Another 20 percent are either in their original home or have moved but continue to use an FHA mortgage.

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AUTHOR DISCLOSURE STATEMENT(S)
Donghoon Lee
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.

Joseph Tracy
The author declares that he has no relevant or material financial interests that relate to the research described in this paper.