New FHA State Level Data: Non Profit Down Payment Loan Claims Rates 2.9 Times That of Loans Without Non Profit Down Payment Assistance.

HUD/FHA has long struggled to control the use of non profit "gift" fund programs that help pay borrowers make down payments on FHA home purchase loans. Aggressive non profit marketing and lobbying have until now tied the hands of a variety of HUD secretaries going back many years, despite substantial evidence that loans with non profit down payments had much higher claims/foreclosure rates. (See HUD Inspector General 2007 testimony HERE recounting some of that history and prior data).

The current Administration has threatened a veto of any housing reform bill that does not include provisions allowing HUD to control the use of these non profit down payment "gift" programs. The Administration has also reopened a rule for comment that would administratively eliminate the use of these programs; this follows a lawsuit that HUD lost based on it's failure to follow proper administrative rule making procedures.

As part of this reopened rule making HUD has posted detailed information about FHA home purchase loans from FY 2000-FY 2007. I have previously used that information to post state overall state and regional claims information HERE.

Today, this post provides a detailed analysis of claims information for more than 2.1 million FHA home purchase loans for the 5 years from FY 2003-2007. The principal focus is a comparison of loans with non profit down payment assistance to loans that did NOT use non profits to fund borrower down payments. Graphs and extensive tables are included in the 13 page PDF file posted HERE.

Key findings for of this analysis of FHA home purchase loans from FY 2003-2007:

1. Loans that had non profit funded down payments had claims rates 2.9 times (190% higher) than the claims rate for loans that did NOT use non profit funds for the down payment. In Oregon the ratio was even higher. Loans with non profit down payments resulted in claims 3.5 times (250% higher) than the rate of loans that did NOT have non profit funded down payments.
   
2. The claims rate for loans with non profit funded down payments was 7.2%; for those without non profit down payments it was 2.5%. In Oregon, claims rates for non profit down payment loans were 3.1%, and without non profit down payments .9%
   
3. Non profit down payment funded loans accounted for 27% of all home purchase loans, but a much greater 52% of all claims.
   
4. The highest non profit down payment claims rate was in Colorado at 13.3%. The claims rate in Colorado for loans without non profit down payment funding was 4.9%.
   
5. If the claims rate for loans WITHOUT non profit down payments had been achieved for ALL loans, the number of claims would have been reduced by 34%, or 28,000+ fewer claims.
6. If HUD/FHA losses per claim were $50,000 (an amount that is likely understated), the losses to the FHA insurance fund for these additional 28,000 claims would exceed $1.4 BILLION.