RATES OF FORECLOSURE IN HOME AND ADDI PROGRAMS

by HUD USER

U.S. Department of Housing and Urban Development
RATES OF
FORECLOSURE
IN HOME
AND ADDI
PROGRAMS
Office of Policy Development and Research

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RATES OF FORECLOSURE IN
HOME AND ADDI PROGRAMS
Prepared for:
U.S. Department of Housing and Urban Development
Office of Policy Development and Research
Prepared by:
Concentrance
®
Consulting Group, Inc.
Washington, D.C.
Principal Authors:
Karmen Carr
Christopher Herbert
Ken Lam
Yusuf Makhkamov
November 2008

ACKNOWLEDGMENTS
The quality of this research was greatly enhanced by the gracious participation of the
following individuals:
HUD Participants
Office of Policy Development and Research
Government Technical Representatives
Judson James, Social Science Analyst and Harold Holzman, Social Science Analyst
Other Participants
Todd M. Richardson, Deputy Assistant Secretary, Office of Policy Development
and Kevin J. Neary, Deputy Assistant Secretary, Office of Research, Evaluation, and
Monitoring
Office of Housing
Charles A. Capone, Jr., Deputy Director, FHA’s Office of Evaluations
Office of Community Planning and Development
Tom Dulebohn, Financial and Information Services Division; Ginger Macomber, Senior
Affordable Housing Specialist; and the Field Office Directors
Local Jurisdiction Participants
The staff of the Participating Jurisdictions that were surveyed for this study.
Concentrance Project Team
Concentrance Consulting Group, Inc.
Karmen Carr, Managing Partner; Darius Grayson, Senior Consultant; Matthew Herman,
Consultant IV; Ishita Sharma, Consultant III; Yusuf Makhkamov, Business Analyst IV;
Mandy Ho, Business Analyst II; Shawn Safaev, Business Analyst II; Leonard Blank,
Formerly Senior Business Analyst; and Jamie Evans, Formerly Business Analyst II
Abt Associates, Inc.
Mike Battaglia, Principal Scientist; Christopher Herbert, Senior Associate; Ken Lam,
Associate; Evan Volgas, Associate Analyst; Chris Blaine, Research Assistant; and
David Rodda, Formerly Senior Scientist (now at Freddie Mac)
Opinions expressed in this report are those of the authors and do not necessarily reflect the
views and policies of the U.S. Department of Housing and Urban Development or the U.S.
government.

FOREWORD
In 2003, Congress established the American Dream Downpayment Initiative (ADDI),
in recognition of the fact that a lack of savings is the most signiﬁcant barrier to homeowner-
ship for most low-income families. The ADDI program was designed to provide assistance
with downpayments, closing costs, and, if necessary, rehabilitation work done in connection
with a home purchase. This formula-based program disburses assistance through a network
of Participating Jurisdictions (PJs) in all 50 states and affords them signiﬁcant ﬂexibility in
designing homebuyer programs to meet the needs of their communities.
The Fiscal Year 2006 Senate Report on the Transportation, Treasury and HUD
Appropriations Bill directed HUD to address growing concerns that many new low-income
homeowners have had difﬁculty maintaining homeownership by reporting on the foreclosure
and delinquency rate of households who received downpayment assistance through ADDI.
This report responds to that mandate and addresses those concerns.
Because of the limited program history of ADDI, and because HOME-assisted
homebuyers are quite similar to those assisted by the ADDI, this study jointly estimates
annual foreclosure and delinquency rates for both HOME- and ADDI-assisted borrowers
who purchased homes during the period from 2001 through 2005. The researchers gathered
program administrative data and loan level information about more than 4,000 home buyers
from a representative sample of participating jurisdictions administering HOME/ADDI
funds. HOME/ADDI loans were then matched to the more detailed data available in the
FHA-insured mortgage portfolio.
The foreclosure rates among HOME/ADDI loans averaged 1.2 percentage points
lower (or roughly a quarter lower) than the corresponding rate for FHA loans over the ﬁve
year period in general. The foreclosure rates among HOME/ADDI-assisted buyers were on
average 40 percent lower than for seller-ﬁnanced downpayment assistance programs, which
were used extensively by nonproﬁt agencies. The PJs did an effective and responsible job in
assisting low–income homebuyers.
Because the HOME/ADDI downpayment programs contained none of the
characteristics (sub-prime lending, seller ﬁnanced downpayments, and exotic mortgage
products) so strongly associated with high default rates, they have been relatively successful
at managing risk and sustaining homeownership for eligible families. The study demonstrates
that responsible homeownership programs can promote ﬁnancial empowerment among
low-income households.
Jean Lin Pao
General Deputy Assistant Secretary
for Policy Development and Research

iv

v
TABLE OF CONTENTS
Executive Summary .............................................................................................................................ix
I. Introduction ...................................................................................................................................1
A. Overview of the HOME and ADDI Programs .................................................................1
B. Study Methodology .................................................................................................................3
C. Organization of the Report....................................................................................................3
II. Data Sources and Data Collection Process ..............................................................................5
A. Survey Methodology and Results ..........................................................................................5
B. Other Key Data Sources ........................................................................................................8
III. Study Findings: Foreclosure and Default Experience ..........................................................13
A. HOME/ADDI Foreclosure Rates .....................................................................................13
B. Delinquency and Foreclosure Among FHA-Insured HOME/ADDI Participants ...28
IV. Summary and Conclusions ........................................................................................................39
V. Appendices ..................................................................................................................................43
A. Data Collection Package.......................................................................................................45
B. Detailed Discussion of Sampling Approach, Sample Weighting, Data Collection
Process, and Matching of IDIS and FHA Data ...............................................................53
C. Key Tables ..............................................................................................................................61
D. Interpretation of the Estimated Coefficients in the Logit and Hazard Rate
Regression Models ................................................................................................................67
E. References ..............................................................................................................................69
F. List of PJs That Participated in the Survey .......................................................................71

vi
CHARTS AND TABLES
Chart ES-1: Estimated Foreclosure Rates in the HOME/ADDI Program Relative to
FHA-Insured Portfolio .................................................................................................x
Chart 1: Estimated Foreclosure Rates in the HOME/ADDI Program Compared
to FHA-Insured Portfolio ..........................................................................................15
Chart 2: Foreclosure Rates Among FHA-Insured Homebuyers Assisted by the
HOME/ADDI Programs and FHA-Insured Homebuyers Relying on Other
Sources for Downpayments .......................................................................................18
Chart 3: Cumulative Foreclosure Rates Among FHA-Insured HOME/ADDI Home-
buyers by Year of Origination ...................................................................................32
Chart 4: Annual Foreclosure Rates Among FHA-Insured HOME/ADDI
Homebuyers by Year of Origination ........................................................................32
Chart 5: Time From Origination Until First Default Among FHA-Insured
HOME/ADDI Homebuyers by Year of Origination...........................................33
Table 1: Data Collected on Sampled Homebuyers Through PJ Survey ..............................6
Table 2: Data Collected on Homebuyer Program Characteristics Through PJ Survey .....7
Table 3: Summary of Data Collection Results .........................................................................8
Table 4: IDIS Data Fields ............................................................................................................9
Table 5: FHA Data for HOME/ADDI Assisted Homebuyers ..........................................10
Table 6: Determining the Accuracy of PJ Survey Data (Comparison of Foreclosure
Rates for Cases in Both PJ Survey and IDIS-FHA Matched Data) ....................16
Table 7: HOME/ADDI Foreclosure Rates 2001-2005 by Key Borrower
Characteristics ..............................................................................................................19
Table 8: HOME/ADDI Foreclosure Rates 2001-2005 by Key Loan and
Downpayment Characteristics ...................................................................................20
Table 9: HOME/ADDI Foreclosure Rates 2001-2005 by PJ Characteristics ..................21
Table 10: HOME/ADDI Foreclosure Rates 2001-2005 by Key Program
Counseling Requirements ...........................................................................................21

vii
Table 11: HOME/ADDI Foreclosure Rates 2001-2005 by Key Program
Characteristics ..............................................................................................................23
Table 12: Comparison of Average Census Tract Characteristics for HOME/ADDI
Assisted Homebuyers 2001-2005 by Their Foreclosure Status ............................25
Table 13: Foreclosure Rates by Origination Year and FHA-Insurance Status ....................29
Table 14: Comparison of Borrower Characteristics for FHA-Insured and Other
HOME/ADDI-Assisted Homebuyers ....................................................................30
Table 15: Comparison of PJ and Program Characteristics for FHA-Insured and
Other HOME/ADDI-Assisted Homebuyers ........................................................30
Table 16: Comparison of Neighborhood Characteristics for FHA-Insured and
Other HOME/ADDI-Assisted Homebuyers ........................................................31
Table B-1: Share of Cases Where PJs Corrected IDIS Data ...................................................59
Table C-1: HOME/ADDI Foreclosure Rates 2001-2005 by Borrower
Characteristics ..............................................................................................................61
Table C-2: HOME/ADDI Foreclosure Rates 2001-2005 by Loan and Downpayment
Characteristics ..............................................................................................................61
Table C-3: HOME/ADDI Foreclosure Rates 2001-2005 by Program Counseling
Requirements ................................................................................................................62
Table C-4: HOME/ADDI Foreclosure Rates 2001-2005 by Program Characteristics .......63
Table C-5: Logit Model Results for the Probability of Foreclosure Among HOME/
ADDI-Assisted Homebuyers 2001-2005 ................................................................64
Table C-6: Cox Proportional Hazard Model of Foreclosure Incidence for
FHA-Insured Homebuyers Assisted by the HOME/ADDI Programs .............65

viii

ix
EXECUTIVE SUMMARY
In recognition of the fact that a lack of savings is the most significant barrier to homeown-
ership for most low-income families
1
, Congress passed the American Dream Downpayment
Act of 2003, which established the American Dream Downpayment Initiative (ADDI). The
ADDI program was designed to provide assistance with downpayments, closing costs, and,
if necessary, rehabilitation work done in conjunction with a home purchase. This formula-
based program disburses assistance through a network of Participating Jurisdictions (PJs)
in all 50 states and affords them significant flexibility in designing homebuyer programs to
meet the needs of their communities. Established as part of the HOME program,
2
ADDI is
a prime example of direct federal assistance to promote low-income homeownership.
In recent years there have been growing concerns that many new low-income homeowners
have had difficulty maintaining homeownership.
3
To address these concerns in the context
of the ADDI program, the Fiscal Year 2006 U.S. Senate Report on the Transportation,
Treasury and HUD Appropriations Bill directed the U.S. Department of Housing and Urban
Development (HUD) to report on the foreclosure and delinquency rate of households
who received downpayment assistance through ADDI.
4
This report has been developed in
response to this congressional mandate.
Due to the limited program history of ADDI, and since HOME-assisted homebuyers are
quite similar to those assisted by the ADDI, this study jointly estimates annual foreclosure
and delinquency rates for both HOME- and ADDI-assisted borrowers who purchased
homes during the period from 2001 through 2005.
5
While all HOME/ADDI-assisted
borrowers were included in the analysis, in order to have the results be representative of the
ADDI program, the sample of PJs was limited to those that were eligible for an allocation
of ADDI funds in 2004, the year in which the largest number of PJs were eligible.
The primary objective of the study, which addresses the congressional inquiry, is to provide
an estimate of the foreclosure and delinquency rates among HOME/ADDI-assisted
homebuyers. HUD was also interested in an analysis of the reasons behind these outcomes.
Thus, a secondary objective of this study is to analyze the factors associated with variations
in delinquency and default rates.
1
See, for example, U. S. Department of Housing and Urban Development, Barriers to Minority Homeownership,
July 17, 2002, and Herbert et al., Homeownership Gaps Among Low-Income and Minority Borrowers and Neighborhoods,
U.S. Department of Housing and Urban Development, March 2005.
2
Created under Title II of the National Affordable Housing Act of 1990, the HOME program is designed to
provide affordable housing to low-income households, expand the capacity of nonprofit housing providers,
and strengthen the ability of state and local governments to develop and implement affordable housing strate-
gies tailored to local needs and priorities.
3
See, for example, Dean Baker, “Who’s Dreaming?: Homeownership Among Low-Income Families,” Center for Eco-
nomic and Policy Research, Washington, DC, January 2005.
4
Throughout our discussion the terms “default” and “foreclosure” are used to refer to the same outcome
where homeowners lose their home in foreclosure.
5
Foreclosure and delinquency rates for 2000 are not included here as the data was not consistent enough to
produce valid estimations.

x
In early 2008, we gathered loan level information on a representative sample of more than
4,000 homebuyers directly from PJs that administer ADDI/HOME funds and developed a
statistically-valid estimate of the foreclosure rate in each year from 2001 through 2005 (PJ
survey data). We used overall foreclosure rates in the FHA-insured mortgage portfolio as of
early 2008 as a point of comparison. Information on foreclosure rates in the FHA portfolio
were also available for subsets of borrowers based on the source of their downpayment,
which provided an opportunity to examine how foreclosure rates for HOME/ADDI-
assisted homebuyers compare to seller-funded downpayment programs as well as other
sources of assistance.
Chart ES-1:
Estimated Foreclosure Rates in the HOME/ADDI Program Relative to FHA-Insured Portfolio
Chart ES-1 summarizes the principal study finding, comparing the estimated cumulative
foreclosure rates as of early 2008 by the year loans were originated in the HOME/ADDI
programs (based on PJ survey data) with the cumulative foreclosure rates for FHA loans
overall originated in the same years. For each origination year starting in 2001, the foreclo-
sure rate among HOME/ADDI loans is lower than the corresponding rate for all FHA
loans. HOME/ADDI foreclosure rates average approximately 1.2 percentage points lower
than the corresponding foreclosure rate in FHA’s loan portfolio in each year.

xi
In short, we find that foreclosure rates in the HOME/ADDI program are not excessive,
achieving lower rates than the FHA loan program
6
and substantially lower rates than those
experienced in the sub-prime market.
7

Chart ES-1 illustrates a general pattern of higher cumulative foreclosure rates among
loans originated in earlier years, with the rate of foreclosure lower for the most recent
originations. This pattern makes intuitive sense given that the more time that passes the
greater the opportunity for homeowners to experience a foreclosure. However, since
earlier vintage loans have had more time to experience a foreclosure, a higher cumulative
foreclosure rate for these older loans does not necessarily mean that they are riskier than
more recently originated loans. But, as will be discovered more at the end of this Executive
Summary, an analysis of FHA loans with HOME/ADDI assistance for which information
is available on the specific timing of foreclosures does indicate that more recent cohorts of
homebuyers through the HOME/ADDI program have had a lower risk of foreclosure than
those assisted earlier in the decade, unlike the broader market which has experienced rising
foreclosure rates over this period.
The accuracy of the PJ-reported foreclosure estimates was examined using a subset of
sampled homebuyers that were matched to FHA’s own data on foreclosure incidence. This
review found that the PJ estimates were within the normal range of sampling error, although
on average the PJ estimates of foreclosure were 0.66 percentage points lower than the rate
found in FHA’s data. But even if the foreclosure rates shown in Chart ES-1 were inflated by
0.66 percentage points, the foreclosure rates among HOME/ADDI-assisted buyers would
still be less than the overall FHA foreclosure rates.
Data on HOME/ADDI-assisted homebuyers was also matched with FHA data to compare
foreclosure among these homebuyers with the rates among FHA-insured borrowers relying
on other sources of downpayment assistance. HOME/ADDI-assisted buyers did have
higher foreclosure rates than buyers who relied on their own funds or family members
for their downpayment, likely reflecting the stronger financial position of these buyers.
But HOME/ADDI-assisted buyers had lower foreclosure rates than buyers receiving
downpayment assistance from government agencies generally as well as those getting their
downpayments through nonprofit agencies, which consist largely of so-called seller-funded
downpayment programs. Seller-funded downpayment assistance, which was discontinued
under the Housing and Economic Recovery Act of July 2008, had been associated with very
high foreclosure rates. In comparison, the foreclosure rates among HOME/ADDI-assisted
buyers are on average 40 percent lower. Given that seller-financed downpayment assistance
has been shown to be so problematic, it is not surprising that those assisted by HOME/
ADDI would do much better.
To analyze the factors associated with variations in delinquency and default rates, we
examined how foreclosure rates in the HOME/ADDI program varied with borrower, PJ,
programmatic, and neighborhood characteristics, along with loan terms. In addition to a
univariate analysis, and to account for instances of variable correlation, we performed a
6
We also examined whether there was a difference in foreclosure rates between the HOME and ADDI pro-
grams and found that there was no statistically significant difference.
7
Based on information gathered by the Mortgage Banker’s Association Mortgage Delinquency Survey.

xii
multivariate regression analysis to assess the association between this broad set of variables
and the variations in foreclosure rates for HOME/ADDI-assisted homebuyers.
Some key variables shown in the multivariate analysis to have a statistically significant
relationship with the incidence of foreclosure are as follows:
FHA Insured Status• : Foreclosure rates in the HOME/ADDI program are not excessive,
achieving lower rates than the FHA program and substantially lower rates than those
experienced in the sub-prime market;
Adjustable Rate Mortgage Type• : Compared to other mortgage product types, adjustable rate
loans were 2.6 times as likely to experience a foreclosure—although only a very small
share of borrowers used adjustable rate loans;
PJ Type:• Consortiums and Cities are found to have higher foreclosure rates relative to
States, while Counties had the lowest rates (although the difference from the rate for
States was not statistically significant);
Declines in house prices• : Every additional one percent decline in house prices in the
surrounding market area, relative to the peak price since 2000, increases the risk of
foreclosure by 10 percent;
Other DPA• : Buyers with more than 9 percent in DPA from non-HOME/ADDI sources
(i.e., other federal, state, or local government programs) had a lower risk of foreclosure;
Higher shares of high cost loans in 2004-2006• :
8
An increase of 1 percent in the share of loans
originated in surrounding neighborhoods between 2004 and 2006 that were high cost is
associated with a 2 percent increase in the risk of foreclosure;
9
Program protections for homebuyers:• PJs that rely on lenders to ensure that interest rates are
not excessive had foreclosure rates that were more than 3 times as high as those for
other PJs.
Program eligibility requirements:• Programs that set limits on homebuyers’ credit scores had
55 percent lower foreclosure rates.
Within this analysis, we also examined whether homebuyers that received housing counseling
services were better able to sustain homeownership. The results do not provide evidence
that counseling reduced foreclosure risk, however this may be due to lack of consistency in
the data. PJs were not required to report counseling information in IDIS prior to 2004 nor
were PJs able to provide detailed historical counseling information for the survey. There also
may not be enough variation in the use of counseling to find an effect since a large majority
of PJs (83 percent) provided homeownership counseling.
8
High cost loan share is based on Home Mortgage Disclosure Act (HMDA) data, in which a loan is considered
high cost if the loan’s interest rate exceeds the rate on Treasury bills of a comparable term by more than 3 percentage
points for a first lien loan or 5 percentage points for a subordinate lien loan.
9
We do not have information on whether individual HOME/ADDI homebuyer used higher cost loans. The
association between the neighborhood share of high cost loans and the foreclosure rate among HOME/ADDI
homebuyers may either reflect a greater likelihood that the homebuyer used a high cost loan or may be due to
situations where higher foreclosure rates in the neighborhood due to high cost loans has a negative impact on
local house prices and other aspects of the neighborhood’s quality of life that may decrease the HOME/ADDI
borrowers’ incentives to maintain homeownership.

xiii
To better understand the divergence of foreclosure rates between FHA-insured and other
HOME/ADDI-assisted homebuyers, we compared these two groups by tabulating a variety
of borrower, PJ, programmatic, and neighborhood characteristics and performing a targeted
multivariate analysis of the factors associated with foreclosure. For the most part, the results
of this analysis revealed few important differences among homebuyers by their FHA-
insurance status. Our hypothesis is that HOME/ADDI program participants with poorer
credit histories are more likely to rely on FHA-insured mortgages, so the higher foreclosure
rates among these homebuyers simply reflects their higher credit risk. This hypothesis is
supported by the fact that FHA-insured homebuyers are less common among PJs that use
credit scores to determine program eligibility.
This study also explored trends over time in foreclosure and delinquency rates for successive
cohorts of participants in the HOME/ADDI programs. To achieve this analysis we used the
matched IDIS-FHA data, tabulated by the year of origination, to explore whether the rela-
tive risk of these loans was increasing or decreasing for successive groups of homebuyers
over time. Our analysis determined that homebuyers assisted during 2003 to 2005 were expe-
riencing lower foreclosure rates than those assisted in 2000 through 2002, after taking into
account the different ages of these loans. It is apparent from this analysis that the HOME/
ADDI loans are becoming less risky for each successive cohort, unlike the broader market
which has experienced rising foreclosure rates over this decade. An assessment of available
information on delinquency among FHA-insured homebuyers also supports the finding that
more recent cohorts of HOME/ADDI-assisted homebuyers have not experienced increased
difficulty in meeting their mortgage obligations relative to those assisted in earlier years.
The estimate of the delinquency and default rate among ADDI-assisted homebuyers
provided by this study shows that the HOME/ADDI program has been relatively successful
at managing risk and sustaining homeownership for eligible families. For the most part, we
found little statistically significant variation in foreclosure rates with homebuyer program
characteristics. This may well reflect the fact that, as foreclosure rates were low for the
HOME/ADDI program, there was little variation to explain. To the extent that some PJs
experienced higher foreclosure rates than others, these differences may be largely attributable
to differences in market conditions rather than how PJs operate their homebuyer programs.
Nonetheless, both univariate and multivariate analysis did find some reduction in foreclosure
rates when PJs imposed eligibility requirements related to credit scores and did not rely on
lenders to ensure that interest rates were not excessive. Further research focused specifically
on programmatic approaches to reduce foreclosure risk would allow for a more in-depth
look at the effect of those processes on delinquency and default rates.

xiv

1
I. INTRODUCTION
In 2003 Congress passed the American Dream Downpayment Act, which established the
American Dream Downpayment Initiative (ADDI) as part of the HOME program.
10
In
recognition of the fact that a lack of savings is the most significant barrier to homeowner-
ship for most low-income families, the ADDI program was designed to provide assistance
with downpayments, closing costs, and, if necessary, rehabilitation work done in conjunction
with a home purchase. In practice, the ADDI program has functioned as part of the HOME
program, administered by the same government entities and following the same general
program regulations. Taken together, HOME and ADDI are among the key forms of direct
federal assistance to promote low-income homeownership.
With general concern growing about the sustainability of homeownership for low-income
homebuyers, the FY 2006 U.S. Senate Report on the Transportation, Treasury and HUD
Appropriations Bill directed the U.S. Department of Housing and Urban Development
(HUD) to report on the foreclosure and delinquency rate of households who receive
downpayment assistance through ADDI.
11
This report has been developed in response to
this congressional mandate.
The primary objective of the study is to provide an estimate of the foreclosure and delinquency
rates among HOME/ADDI-assisted homebuyers. While Congress only directed HUD
to provide information on delinquency and default rates, HUD is interested in an analysis
of the reasons behind these outcomes as well. Thus, a secondary objective of this study is
to analyze the factors associated with variations in foreclosure rates. An analysis of the
factors associated with foreclosure can help to identify whether there are differences in the
characteristics of homebuyer programs, homebuyers, or their loans that contribute to overall
differences in foreclosure rates.
In addition, while Congress only directed HUD to examine the ADDI program, the study
has been framed to look at homebuyers assisted by both the HOME and ADDI programs.
This change was made in large part because the ADDI program only began assisting home-
buyers in 2004, with a good deal of program activity occurring in more recent years. Thus,
there is not sufficient program history to provide a good indication of foreclosure and delinquency.
To address this limitation, and in recognition of the great similarity in program operations of
the HOME and ADDI programs, the scope of the study was broadened to jointly examine
the foreclosure incidence of those assisted by both the HOME and ADDI programs.
A. Overview of the HOME and ADDI Programs
Both ADDI and HOME are formula-based programs that grant funds to four types of
participating jurisdictions (PJs): states, cities, counties, and consortia. Under both programs,
10
Created under Title II of the National Affordable Housing Act of 1990, the HOME program is designed to
provide affordable housing to low-income households, expand the capacity of nonprofit housing providers,
and strengthen the ability of state and local governments to develop and implement affordable housing strate-
gies tailored to local needs and priorities.
11
Throughout our discussion the terms “default” and “foreclosure” are used to refer to the same outcome
where homeowners lose their home in foreclosure.

2
states are automatically eligible for grant allocations, while city and county governments
must meet a minimum threshold measured by a formula in order to receive funds directly.
Local governments that do not meet the minimum threshold can receive funds by forming a
consortium with other local governments to reach the threshold or can seek funds through
their state’s program.
Both programs afford PJs a great deal of discretion in targeting assistance. One of the main
requirements of these programs is that assisted homebuyers have incomes at or below 80
percent of the area median income (AMI). Beyond that, PJs are free to decide whether to
open their program to all eligible households or to target specific areas or income groups.
Both programs also permit PJs a great deal of flexibility in how homebuyer assistance is
provided.
A significant difference between HOME and ADDI programs is that in addition to efforts
to support homeownership, PJs may also use HOME funds for the acquisition, construction,
and rehabilitation of rental housing, for tenant-based rental assistance, and for rehabilitation
of owner-occupied properties. Another difference between the programs is that while
ADDI funds may only be used for downpayment assistance, closing costs, and rehabilitation
costs for ADDI-assisted properties, HOME funds may also be used to provide primary
financing, interest rate subsidies, or loan guarantees. Other differences from the HOME
program include the fact that ADDI-assisted families must also be first-time homebuyers
and the amount of ADDI assistance per homebuyer cannot exceed $10,000 or 6 percent of
the purchase price, whichever is greater.
A HUD study of the HOME program in 2003 found that the median amount of direct
homebuyer assistance was $8,000, with an average of $13,000, so the cap on ADDI
assistance is below the average amount of HOME assistance for a little less than half of all
PJs.
12
However, PJs can combine ADDI assistance with other funding sources — including
HOME — to assist eligible households, so in practice this cap is not likely to be limiting.
Both programs require that either a resale or recapture agreement be executed between the
PJ and the homebuyer, which determines what happens if the property is sold during the
long-term affordability period. The affordability period is 5 years if the amount of assistance
provided is less than $15,000, 10 years if the assistance is more than $15,000 but less than
$40,000, and 15 years if the amount of assistance is over $40,000. In practice, this require-
ment means that PJs must retain a lien on the purchased property for the full affordability
period even if the assistance given is in the form of a grant.
Thus, for the most part, the type of assistance provided through HOME and ADDI should
be comparable in terms of the impact on housing affordability for homebuyers — and thus,
their ability to maintain homeownership.
Homebuyer programs have accounted for a significant share of annual HOME expenditures.
According to HUD’s most recent production report for the HOME program, from 1992
through June 2008, 362,873 homebuyers had been assisted, including roughly 277,170 that
had acquired existing homes and 85,709 that purchased units created through new construc-
12
“Study of Homebuyer Activity through the HOME Investment Partnership Program,” Jennifer Turnham,
Christopher Herbert, Sandra Nolden, Judith Feins, and Jessica Bonjorni, U.S. Department of Housing and
Urban Development, December 2003.

3
tion or rehabilitation of existing homes.
13
In recent years, the number of assisted homebuy-
ers has been between 20,000 and 30,000 a year. Since fiscal year 2003, approximately 30,000
homebuyers received downpayment assistance through ADDI. ADDI assistance peaked in
2006 with 9,096 assisted homebuyers and declined to 4,209 assisted homebuyers in 2008,
reflecting a decrease in annual ADDI appropriations.
B. Study Methodology
A significant challenge for this study was obtaining information on foreclosure and
delinquency rates among HOME- and ADDI-assisted buyers. While PJs hold a secondary
lien on the property for the duration of the affordability period, a large share of PJs are not
involved in collecting regular mortgage payments from assisted homebuyers, nor do they
have good information on the lender who holds the first mortgage for these buyers. To over-
come this challenge we devised a methodology that relied on two strategies. The first strategy
entailed soliciting information on a representative sample of more than 6,000 homebuyers
directly from PJs that administer HOME/ADDI funds. These data were used to develop
a statistically-valid estimate of the foreclosure rate for the HOME/ADDI programs in
each year from 2000 through 2005. Overall foreclosure rates in the FHA portfolio are used
as a point of comparison with these rates since FHA serves a predominantly low-income
population and includes many first-time homebuyers. Information on foreclosure rates in the
FHA portfolio were also available for different classes of borrowers based on the source of
their downpayment, which provided an opportunity to examine how these rates compared to
seller-funded programs and other forms of downpayment assistance.
Information on borrowers, the home purchase transaction, PJs, and neighborhoods were
used to analyze the factors associated with variations in foreclosure rates to see if there are
any lessons for policy makers in how to minimize these risks. However, a key limitation of
this approach was that PJs often did not maintain detailed information on the borrowers,
their loan terms, or historical programmatic characteristics to support a rich analysis of the
factors associated with foreclosure. In addition, while foreclosure rates were the primary
concern of this study, for recently originated loans, delinquency rates could be a better
indicator of borrower distress since foreclosures often occur at the end of a lengthy process.
To address these limitations, our second analysis strategy relied on obtaining detailed loan
and borrower data from FHA on HOME/ADDI-assisted buyers that were financed using
FHA-insured mortgages.
C. Organization of the Report
The remainder of this report follows key steps undertaken by the Concentrance team to
achieve the objectives laid out above. As stated previously those objectives are to:
Provide an estimate of the foreclosure and delinquency rates among HOME/ADDI-•
assisted homebuyers; and
Analyze the factors associated with variations in delinquency and default rates.•
13
HOME Program National Production Report (As of June 31, 2008), U.S. Department of Housing and Urban
Development.

4
Section II provides a detailed description of the data collection and analysis strategies,
sampling approach, sources of data and data issues that we have discovered. Section III
begins with an overview of ADDI/HOME foreclosure rates based on data collected from
PJs on more than 5,000
14
cases gathered through the survey of PJs. We then discuss the
incidence of foreclosure and delinquency among FHA-insured participants in HOME/
ADDI programs based on survey results, and then based on matched FHA and data from
the Integrated Disbursement and Information System (IDIS), which is used by PJs to report
their use and identify allocations of HOME/ADDI downpayment assistance. The final sec-
tion summarizes study findings, draws conclusions regarding factors contributing to variation
in foreclosure and delinquency and discusses some policy implications of our findings.
This report contains five appendices. Appendix A provides data collection package used in
the study; Appendix B presents details on the sampling approach, development of sample
weights, the data collection process and the process for matching FHA and IDIS data;
Appendix C offers detailed tabulations of the regression analyses; Appendix D provides an
interpretation of the estimated coefficients from the Logit and hazard rate regression mod-
els; Appendix E lists references cited; and Appendix F provides a list of PJs that participated
in our survey.
14
Cases from 2000 are included in the accounting.

5
II. DATA SOURCES AND DATA COLLECTION PROCESS
There were three main sources of data used in this study: 1) information gathered through
a PJ survey on both foreclosure incidence among a sample of HOME/ADDI assisted
homebuyers and characteristics of PJ homebuyer programs (PJ survey); 2) administrative
data on homebuyers assisted through the HOME/ADDI programs from HUD’s Integrated
Disbursement & Information System (IDIS); and 3) administrative data on FHA-insured
mortgages where borrowers also received assistance through the HOME/ADDI programs
(FHA-IDIS match). These primary data sources were supplemented with data on metropoli-
tan area or census tract characteristics from several different sources.
The section opens with a description of the process used to execute the PJ survey including
development of the sample of homebuyers as well as the survey instrument used to collect
foreclosure and programmatic information from PJs. We also summarize the results of the
data collection effort. We then describe the administrative data used in the study from IDIS
and FHA as well as the supplemental data on the characteristics of geographic areas used
in the analysis. The data collection instruments used are presented in Appendix A. Further
details on the sampling approach, the method for estimating sampling weights used to
analyze results, and the data collection process are provided in Appendix B.
A. Survey Methodology and Results
Sampling Strategy
The PJ sample was designed to produce an estimate of the foreclosure rate for the combined
HOME/ADDI programs for each of the years 2000 through 2005. The respondent universe
was made up of the PJs that administered these programs and thus maintained the information
desired on individual homeowners. HUD’s IDIS data was used to identify the number of
homebuyers assisted by each PJ in each year from 2000 through 2005. The respondent universe
in each year from 2000 through 2005 consisted of PJs that assisted at least 1 homebuyer
in that year and that were eligible to receive an allocation of ADDI funding in Fiscal Year
2004.
15
In addition to these restrictions, the universe of PJs also excluded PJs in Louisiana,
Mississippi, and parts of Alabama affected by the 2005 hurricanes in order to avoid having
the estimated foreclosure rates elevated due to the impact of these storms. In addition,
one PJ that was under investigation for mismanaging its HOME/ADDI program was also
excluded from the respondent universe. Based on these criteria, the total number of PJs in
the respondent universe ranges from a low of 302 in 2000 to a high of 371 in 2005.
The PJ sampling approach was designed to minimize the number of PJs that were selected in
order to minimize the burden placed on survey respondents while also meeting goals related
to the variance of the estimated foreclosure rate. The sample was designed to provide an
estimate of the foreclosure rate with a standard error of 1 percent based on an assumed
15
PJs were eligible for ADDI funding if they have a total population of at least 150,000 or would receive an
allocation of more than $50,000 based on the ADDI Allocation Formula. Fiscal Year 2004 had the largest
allocation of funding for the ADDI program, so it was the year when the largest number of PJs were eligible
for funding.

6
foreclosure rate in the HOME/ADDI program of 5 percent. To accomplish these goals
the study design used a sample of 33 PJs in each of the 6 years. The sampling process took
into account the number of homebuyers assisted in each year, and was designed to ensure
representation of different types of PJs (i.e., state, city, county, or consortium of local
governments) and region of the country.
For PJs assisting more than 50 homebuyers in a given year, 50 homebuyers were selected at
random to collect information on. In cases where PJs assisted fewer than 50 homebuyers in
a given year, PJs were asked to report on all of their assisted homebuyers for that year.
The resulting sample consisted of 133 PJs, including 88 that were sampled once, 34 that were
sampled twice, 7 that were sampled 3 times, 1 that was sampled 4 times, 2 that were sampled
5 times, and 1 that was sampled in all 6 years. However, since the sample is limited to a maxi-
mum of 50 buyers per year, the largest number of buyers any one PJ was asked to report on
was 300. The total number of buyers sampled in each year ranged from 967 to 1,165.
Description of Survey Instrument
The PJ survey sought two types of information: 1) the foreclosure status of individual loans
in a sample of homebuyers assisted by the PJ along with some additional information on the
home purchase transaction; and 2) information on the PJ’s homebuyer program as it existed
at the time that the sampled homebuyers were assisted. Table 1 summarizes the information
collected on the sample of homebuyers.
As reflected in the three panels of Table 1, there were three sections to the data collection
instrument: A) IDIS fields to be verified or corrected; B) key fields indicating the current

7
foreclosure and delinquency status of homebuyers and whether assistance was provided
through the HOME or ADDI programs; and C) data from loan documents if available. The
lien status field in Section B was required for the response to be considered complete, while
the fields in Section C were expected to be more difficult for PJs to complete and so were
not required for a completed response.
The PJ survey also sought information on selected characteristics of the PJ’s homeowner-
ship program in the year in which sampled homebuyers were assisted. Table 2 summarizes
these fields. The programmatic questions included in the PJ survey covered three topics:
homeownership education and counseling, program eligibility criteria, and homebuyer
protection provisions to ensure buyers obtained decent homes and at an affordable cost.
The data collection instruments are presented in Appendix A.
PJ Survey Results
The data collection process (described in detail in Appendix B) resulted in a high response
rate both in terms of number of PJs and number of cases. Out of the 133 PJs in the original
sample, we received data from 107 PJs. The remaining 26 PJs consisted of 16 PJs that
declined to participate or failed to respond within the allocated timeframe and 10 PJs whose
entire sample consisted of not assisted homebuyers either due to miscoding of the type or
year of assistance.
Table 3 summarizes our data collection results. Of the initial study sample of 6,351
homebuyers, 143 cases were found to be outside of the study universe either because they
were not assisted homebuyers or were homebuyers assisted outside of the study timeframe.
Of the remaining 6,208 cases, foreclosure status was obtained for 5,065 cases, representing
a response rate of 81.6 percent. Among non-responding cases, 611 were cases where the PJ
failed to respond to the survey and 532 were cases where the PJ responded but did not know
the foreclosure status of the sampled homebuyer. Of the 5,065 cases reported, a total of
173 had experienced a foreclosure, or 3.4 percent of the unweighted sample.
The fairly high response rate provides some confidence that there was not any response bias
due to PJs with higher foreclosures choosing not to respond to the survey. One method used

8
to identify any potential non-response bias is to compare foreclosure rates for homebuyers
identified as having FHA-insured loans in the survey data with foreclosure rates among
FHA-insured homebuyers identified by matching IDIS and FHA data, which are not subject
to any response bias. As will be presented in the next section of this report, there is not a
substantial difference in the foreclosure rates for this FHA-insured subset from the PJ sur-
vey compared to the matched IDIS-FHA data with the exception of the year 2000 sample.
For other sample years, the foreclosure rates from these two sources are fairly similar, with
the sample data having higher rates in some years and lower rates in other years consistent
with sampling variation.
As described in Appendix B, sampling weights were estimated taking into account the survey
design and survey non-response to provide estimates of foreclosure rates for the HOME/
ADDI program in each year from 2000 to 2005.
B. Other Key Data Sources
IDIS Data
PJs use IDIS to report their use of HOME/ADDI funds to HUD and identify allocations
of HOME/ADDI funding to individuals for downpayment assistance.
16
The IDIS data
was crucially important for this study for two reasons. The first was that the data provided
information on the universe of homebuyers assisted by the HOME/ADDI programs that
we used to develop the study’s sampling approach. The second was that it provided details
on the amount and type of assistance provided, and the characteristics of the buyers and
their home that we used in analyzing the factors associated with variations in foreclosure
rates. The IDIS fields that were used for this study are summarized in Table 4.
As described in greater detail in the discussion of the Data Collection Process in Appendix B,
certain characteristics of the IDIS database resulted in adjustments to the sample of HOME/
ADDI loans used for this study. There were three types of issues that resulted in removal
or replacement of cases from the sample: cancelled loans (replaced), multiple activity IDs
(replaced) and cases incorrectly identified as downpayment assistance (removed). As is
16
Of some importance for this study, the IDIS system does not distinguish between the HOME and ADDI
programs.

9
indicated in Table 3, cases incorrectly coded as downpayment assistance constituted only
2.25 percent of the sample. Due to a relatively small number of these instances we are
confident that these data adjustments did not have a material impact on our findings.
The IDIS data was of great importance for the study in defining the universe of assisted
HOME/ADDI homebuyers and in providing a variety of descriptive information on these
homebuyers. As a result, it is important that the IDIS data be accurate. Since the main purpose
of the IDIS system is to track expenditures through HUD grant programs, it is expected that
the number of homebuyers assisted and amount of HOME/ADDI funds expended would
be substantially accurate. However, state and local governments may have less incentive to be
concerned about the accuracy of other descriptive information. The survey of the HOME/
ADDI programs asked PJs to correct key fields reported in IDIS that would be used in the
analysis. Our tabulations show that in general the accuracy rate is 90 percent or higher for
most of the data elements we examined (see Appendix B for details on the correction rates
for individual variables in IDIS).
FHA-IDIS Match Data
While the data collected from PJs provided an estimate of the foreclosure rate for the
HOME program in each year from 2000 through 2005, there were several limitations of
these data. First, there can be a long period of time between homeowner failure to meet
his or her mortgage obligation and when a foreclosure is completed and brought to the
attention of the PJ. The data collected on foreclosure incidence from PJs did not provide a
good indication of the degree of financial distress experienced by more recent homebuyers.
Second, given limitations on the information available from PJs on the details of when
foreclosures occurred, the survey data would not provide an indication of how soon after
origination homeowners were foreclosed. Third, the range of explanatory variables available
from PJs was limited, with such factors as loan terms and debt burdens unavailable for most
sampled buyers. The limited number of explanatory variables made it difficult to identify the
factors that contributed to the reported incidences of foreclosure. Finally, in order to avoid
placing too great a burden on PJs, the homebuyer sample sizes were relatively small, about
1,000 buyers per year. Small sample sizes made it difficult to generalize our findings to the
population as a whole, especially with respect to comparisons analyzed via the application of
inferential statistics like tests of significance.

10
In order to address these limitations, we supplemented our analysis of data collected from
PJs with an analysis of FHA-insured homebuyers using HOME/ADDI downpayment
assistance. We matched IDIS data on all HOME/ADDI assisted homebuyers from calendar
years 2000 through 2005 with FHA data on its insured mortgage portfolio. The matching
process relied primarily on the property address information in the two data sets. A total
of roughly 48,000 homebuyers assisted by the HOME/ADDI programs between 2000
and 2005 were identified in FHA’s data. These data provide a rich set of information on
homebuyers, their mortgages and properties, and their delinquency and foreclosure history.
In addition, since data included property addresses, we also were able to identify the
metropolitan area and census tract where these properties were located and include market
and neighborhood characteristics in our analysis. Table 5 summarizes the fields available in
the FHA- data.
Supplemental Data
Several other sources of data were used to supplement the main data described above. These
include:
The • 2000 decennial census at the census tract level to capture neighborhood
characteristics that may influence the risk of foreclosure. The measures used include: the
ratio of tract home prices to the metropolitan area or state median house price, the ratio
of median household income to the metropolitan or state median household income,
the percent minority, the percent of adults with a college degree, the percent of owner-
occupied homes, and the percent of the housing stock in single family detached units.
The • Office of Federal Housing Enterprise Oversight (OFHEO) repeat sales
house price index to capture declines in house prices since 2000 that may increase the
risk of foreclosure. The specific measure used is the ratio of the index from the first
quarter of 2008 to the highest value of the index since 2000 for either the core based
statistical area or the state (in non-metropolitan areas).

11
Home Mortgage Disclosure Act (HMDA) data• on the share of mortgages
originated at the census tract level from 2004 through 2006 that were so-called high cost
mortgages.
17
There are two ways in which the share of high cost mortgages could affect
the likelihood of an assisted homebuyer experiencing a foreclosure. First, this measure
indicates the likelihood that the homebuyer took out a high-cost mortgage. Second,
areas with high shares of these loans are more likely to experience high foreclosure
rates, which in turn will depress neighborhood level house prices and increase a host of
neighborhood disamenities that would make it more likely that an owner would give up
their home to foreclosure.
Bureau of Labor Statistics data on county unemployment rates• as of June
2008, which provides an indication of whether the assisted homebuyer is likely to be
unemployed and unable to meet their mortgage obligations.
17
HMDA defines a “high-cost mortgage” as one with an interest rate that is more than 3 percentage points
above the yield on Treasury bills with a comparable term for first-lien mortgages or 5 percentage points for
junior lien mortgages.

12

13
III. STUDY FINDINGS: FORECLOSURE AND DEFAULT
EXPERIENCE
The first half of this section presents our estimates of foreclosure rates in the HOME/
ADDI program based on the PJ survey data, along with our analysis of the factors
associated with variations in these rates. All of the survey results presented were weighted
as described in Appendix B to represent the universe of HOME/ADDI homebuyers.
The second half of the section then focuses on foreclosure and delinquency rates among
borrowers assisted through the HOME/ADDI programs who obtained an FHA mortgage,
incorporating analysis of the matched IDIS-FHA data.
A. HOME/ADDI Foreclosure Rates
Relevant Benchmarks
Any household can be confronted with an unexpected financial crisis that can challenge
its ability to meet monthly mortgage obligations. But the low-income households intended
to be served by the HOME/ADDI programs are both more likely to experience financial
crises and less likely to have the financial resources needed to weather these events.
18

Therefore, some level of foreclosures is inevitable. In order to assess whether the estimated
foreclosure rates for homebuyers assisted by the HOME/ADDI programs may be excessive,
18
See “The Experience of Low-Income and Minority Homeowners: A Review and Synthesis of the Litera-
ture,” by Christopher E. Herbert and Eric S. Belsky, Cityscape 10(20):5-60.
Foreclosure rates in the HOME/ADDI programs were generally lower than in the ;
FHA loan program.
The foreclosure rates for FHA-insured loans with HOME/ADDI assistance were ;
40 percent lower than FHA-insured loans with seller-funded downpayment assistance.
Among HOME/ADDI-assisted homebuyers, those with FHA insured loans had a ;
higher probability of going into foreclosure.
There was no statistically significant association between higher levels of HOME/ ;
ADDI assistance and foreclosure rates, although high levels of other forms of DPA
did reduce this risk.
PJs that used credit scores to determine eligibility and PJs that did not rely on lenders ;
to ensure that interest rates were not excessive had lower foreclosure rates.
While housing counseling did not appear to reduce the risk of foreclosure by a ;
statistically significant amount, this result could be due to data issues.
Declining house prices in the local market area increased the risk of loans going to ;
foreclosure.
Homebuyers living in neighborhoods with higher shares of high cost loans had a ;
slightly increased risk of foreclosure.
Section Highlights

14
a benchmark for comparison is needed. The question for policy makers will be whether the
extent of foreclosures experienced among HOME/ADDI borrowers is reasonable given the
goal of enabling homeownership for a group that might otherwise not be able to achieve
this goal.
To help put the HOME/ADDI foreclosure rates in perspective, we used foreclosure rates
for all FHA loans from the corresponding fiscal year as a point of comparison. Of the major
mortgage market segments—conventional prime, sub-prime, and FHA-insured—FHA
borrowers provided the most relevant benchmark as they consisted of a similar population
of low-income and largely first-time homebuyers.
19
Given the federal government’s long
commitment to FHA’s lending programs, the foreclosure rates experienced by these
borrowers may also represent an estimate of the level of foreclosures that might be deemed
acceptable by policy makers. A comparison with FHA foreclosure rates was also facilitated
by the availability of detailed information on foreclosure rates for FHA-insured loans by the
fiscal year of origination.
20

We also examined data from the Mortgage Banker’s Association Delinquency Survey to help
put FHA’s foreclosure rates in perspective relative to other key segments of the mortgage
market. During the first quarter of 2008, 0.87 percent of FHA loans started the foreclosure
process. In comparison, the rate at which sub-prime loans began foreclosure was more than
four times higher at 4.06 percent. Given that subprime loans are responsible for much of the
current foreclosure crisis, the FHA foreclosure rates provide a somewhat conservative point
of comparison for the HOME/ADDI programs.
On the other hand, conventional prime loans had a lower foreclosure start rate than FHA
loans, with 0.54 percent starting the process. This lower foreclosure rate was not surprising
given that prime loans usually go to borrowers with higher income, more equity in their
homes, and better credit scores. But, even with the lower risk among prime borrowers, FHA
foreclosure rates were not substantially worse than conventional prime loans, making FHA
foreclosure rates a reasonable benchmark for the HOME/ADDI programs.
Comparison of Foreclosure Rates for HOME/ADDI and FHA Loans
FHA Loans Overall
Chart 1 presents the estimated foreclosure rate by origination year in the HOME/ADDI
programs based on PJ survey data along with the foreclosure rate among all FHA loans
originated in the corresponding fiscal year.
21
Chart 1 illustrates a general pattern of higher
cumulative foreclosure rates among loans originated in earlier years, with the rate of
19
As of 1999, 81 percent of FHA home purchase loans went to first-time homebuyers, which is close to the 88
percent first-time homebuyer share found in our HOME/ADDI sample. See “First-time Homebuyers: Trends
from the American Housing Survey,” U.S. Housing Market Conditions, Third Quarter 2001, U.S. Housing and
Urban Development.
20
Tables showing foreclosure (claims) rates by year of origination for FHA loans was published in from
“Standards for Mortgagor’s Investment in Mortgaged Property: Additional Public Comment Period,” Federal
Register Vol. 73, No. 116, pages 33941-33955, June 16, 2008.
21
The use of fiscal year of origination for the FHA loan foreclosure rates provides a somewhat conservative
comparison for HOME/ADDI loans since the fiscal year begins three months earlier than a calendar year and
so provides more time for a foreclosure to occur. The FHA foreclosure rates are as of February 2008, while
the PJ survey data was collected between February and May 2008.

15
foreclosure decreasing for the more recent originations. This pattern makes intuitive sense
given that the more time that passes the greater the opportunity for homeowners to experi-
ence a foreclosure.
22
For each origination year from 2001 onward, the foreclosure rate among
HOME/ADDI loans was lower than the corresponding rate for FHA loans, averaging about
1.2 percentage points lower in each year.
23
In short, we found that foreclosure rates in the
HOME/ADDI program were not excessive, achieving generally lower rates than the overall
FHA loan program.
The one exception to this trend was for borrowers assisted through the HOME/ADDI
program in 2000, who had a lower foreclosure rate than all other groups except those who
bought in 2005, raising questions about the validity of the estimate for the year 2000.
In order to determine the accuracy of the foreclosure rate estimates for each year, we
matched and compared the foreclosure rates for FHA-insured loans as reported by PJs
(identified as FHA in PJ survey data) with the rates from FHA’s own administrative data for
HOME/ADDI-assisted homebuyers (FHA-IDIS match). Since FHA’s administrative data
22
A higher cumulative foreclosure rate for loans of earlier vintages does not necessarily mean that these loans
are riskier than more recently originated loans, since they have had more time to experience a foreclosure.
Analysis presented later in this chapter for FHA loans comparing foreclosure rates over time provides a better
indication of the relative risk of foreclosure of different borrower cohorts. But this analysis shows that, in
fact, these earlier cohorts of borrowers did face a higher risk of foreclosure even controlling for the amount of
time that has passed since purchase.
23
Multivariate analysis controlling for the time since loan origination reported later in this report (p. 35, 37)
indicates that HOME/ADDI borrowers from the recent cohorts (2003 to 2005) experienced lower foreclosure
rates compared to those from the earlier cohorts (2000 to 2002). However, it is important to note that there is
still limited experience with these newer loans.
Chart 1: Estimated Foreclosure Rate in the HOME/ADDI Program Compared to FHA-
Insured Portfolio

16
can be taken as a definitive indication of whether a foreclosure occurred, this comparison
provides a strong check on the validity of the foreclosure rates reported by PJs. Table 6 on
the next page provides this comparison of the subset of PJ survey data to the subset of
FHA-IDIS match data.
As shown, for those assisted in the years 2000 through 2002 and again in 2005 the estimated
foreclosure rate from PJs was lower than that found in FHA’s data. However, in 2003 and
2004, the rates reported by PJs exceeded those found in FHA’s data. The largest difference
was for those assisted in the year 2000, where the PJ foreclosure rate was 2.8 percentage
points lower than the rate in FHA’s data. The PJ estimate for the year 2000 is also the only
one of the six estimates that is outside of the 95 percent confidence interval for the PJ esti-
mate. This comparison confirms that the PJ survey data for 2000 underestimates the actual
foreclosure rate. When this year is excluded, we find that in 2 of the 5 years, the PJ estimate
is higher than the FHA rate and in 3 of the 5 years it is lower. While there is a slight overall
tendency for the PJ estimate to be lower — averaging 0.66 percentage points lower than the
foreclosure rates indicated by FHA’s administrative data for those assisted between 2001 and
2005 — this difference is within the range of the estimated sampling error as indicated by
the 95 percent confidence interval shown in Table 6.
24

This comparison gives us confidence in the PJ estimates of foreclosure rates for the years
2001 through 2005. The estimates for 2000 appear to be too low, however. Even if the
PJ-reported foreclosure rates shown in Chart 1 were increased by 9 percent to account for
potential underreporting bias by PJs, the resulting rates would still be lower than the overall
FHA foreclosure rate.
We cannot identify any explanation for the discrepancy with the 2000 foreclosure estimate.
The PJ survey response rates were not materially different from other years, nor were there
any systematic differences in PJ or borrower characteristics. The most plausible explanation
for the low foreclosure rate for this year seems to be random sampling variation.
Note: 95% confidence interval takes into account the expected degree of sampling variation; 95 percent of the time the true
foreclosure rate is expected to fall within this range.
Sources: PJ Survey data from Concentrance Consulting PJ survey and FHA administrative data.
24
Methods for estimating the sampling errors are documented in the “Variance and Confidence Intervals”
section of Appendix B.

17
FHA Loans by Source of Borrower Downpayment
Another point of comparison for foreclosure rates for the HOME/ADDI program are
FHA borrowers by downpayment source. Chart 2 compares the foreclosure rates among
all HOME/ADDI-assisted homebuyers that were matched with FHA’s administrative data
(FHA-IDIS match data) with the foreclosure rates for all FHA-insured buyers by the source
of their downpayment. The FHA foreclosure (or claims) rates are from a recently published
Federal Register notice providing this information broken out by the fiscal year the loan was
originated and whether the source of the downpayment used was from the borrower’s own
funds or was a gift from family, provided through a government agency, or from a nonprofit
organization.
25
HUD has found that this last group consists largely of seller-funded down-
payment assistance, which has been associated with very high foreclosure rates among FHA
loans. These high foreclosure rates have created concerns that the high claims rates may be
driven by the fact that when sellers stand to benefit from the home sale transaction they may
promote their own interests at the expense of the borrower’s interest.
26

Before turning to a comparison of foreclosure rates by downpayment source, it is important
to note that the foreclosure rates among HOME/ADDI-assisted homebuyers using
FHA-insured mortgages (FHA-IDIS match data) are generally much higher than among
HOME/ADDI-assisted homebuyers overall (PJ survey data). This is evident by comparing
the foreclosure rate for HOME/ADDI-assisted homebuyers shown in Chart 1 with those
shown in Chart 2. The higher foreclosure rates among FHA-insured buyers will be examined
in some depth later in this chapter, but this seems to reflect the fact that FHA-insured
borrowers represent a higher-risk segment of the mortgage market.
Chart 2 shows that HOME/ADDI-assisted buyers using FHA-insured mortgages have
consistently higher foreclosure rates than FHA-insured borrowers using either their own
funds or contributions from family members for their downpayment. This difference is not
surprising as households with sufficient financial resources to fund their own downpayments
or who have family members they can turn to in times of financial need are more likely to
have the ability to tap these same sources to deal with unexpected financial challenges that
might otherwise lead to a foreclosure.
However, Chart 2 also shows that the foreclosure rate among HOME/ADDI-assisted
buyers is also consistently lower than among borrowers relying on downpayment assistance
from government agencies or nonprofits. Since the HOME/ADDI is a form of assistance
from government agencies, this difference suggests that the HOME/ADDI program has
generally lower foreclosure rates than other government-funded downpayment assistance
efforts funded by state and local governments. The differences in foreclosure rates compared
to borrowers relying on nonprofit organizations providing downpayment assistance are
particularly large, with the foreclosure rate among HOME/ADDI-assisted homebuyers
40 percent lower on average.
In the remainder of this section we examine how foreclosure rates in the HOME/ADDI
program vary considering specific loan characteristics including borrower, loan terms, PJ
25
See “Standards for Mortgagor’s Investment in Mortgaged Property: Additional Public Comment Period,”
Federal Register Vol. 73, No. 116, pages 33941-33955, June 16, 2008.
26
For a thorough discussion of this issue see “Standards for Mortgagor’s Investment in Mortgaged Property:
Additional Public Comment Period,” Federal Register Vol. 73, No. 116, pages 33941-33955, June 16, 2008.

18
characteristics, and neighborhood characteristics. For this analysis we pooled data from all
of the origination years in the sample data in order to examine a single HOME/ADDI
foreclosure rate rather than examine foreclosure rates for individual years. In pooling the
data, we opted to exclude the 2000 sample data given that the foreclosure rate appeared to
be unrealistically low and so may have biased the estimated foreclosure rates downward. In
comparing the results using the entire samples versus the results using the adjusted sample
(2001-2005), the entire sample did not produce materially different results from those
reported in the remainder of this report.
Variations in Foreclosure Rates by Borrower Characteristics
Appendix Table C-1 presents tabulations of foreclosure rates for origination years 2001
through 2005 by a variety of borrower characteristics available from the IDIS data, including
race/ethnicity, household income, household type, household size, first-time homebuyer
status, and whether the borrower received housing counseling. In general, there were few
statistically significant differences in foreclosure rates by borrower characteristics. Table 7
presents the results for the only statistically significant differences. These were a 1.4 percent-
age point higher foreclosure rate among non-Hispanic blacks relative to those of “Other”
races, and a 3.0 percentage point higher foreclosure rate for homebuyers that were reported
to have not received housing counseling relative to those that did. However, the elevated
level of foreclosure rate for the African American borrowers is no longer evident once other
borrower and loan characteristics are controlled for in the multivariate analysis reported later
in this report.
Chart 2: Foreclosure Rate Among FHA-Insured Homebuyers Assisted by the HOME/ADDI
Programs and FHA-Insured Homebuyers Relying on Other Sources for Downpayments

19
Our findings regarding household counseling should be interpreted with caution. As will be
discussed in greater detail in the section on program characteristics, the housing counseling
indicator in IDIS suggested that significantly fewer buyers received counseling than was
reported in the PJ survey. The PJ survey indicated that more than four-fifths of buyers
received counseling compared to only a little more than a quarter having this indication in
IDIS. Our examination of the IDIS
data revealed that prior to 2004 the
vast majority of borrowers were not
counseled. But beginning in 2004 a
slight majority of cases were reported
to receive counseling. Given that most
PJs reported having had counseling
requirements for some time, it is likely
that the IDIS data is not accurate,
particularly for years prior to 2004,
likely reflecting the fact that PJs were
not required to report this information
in IDIS and so most chose not to.
The statistically significant difference
shown in Table 7 may reflect the fact
that counseled borrowers were heavily
concentrated in 2004 and 2005 and so
had less time to experience a foreclo-
sure than earlier origination cohorts.
Variations in Foreclosure Rates by Loan Terms and Financial Assistance
Appendix Table C-2 presents tabulations of foreclosure rates for origination years 2001
through 2005 by a variety of loan and financial assistance variables from the PJ survey and
IDIS data. These variables include whether the primary mortgage was FHA-insured, whether
the primary funding source was private or public, the amount of HOME/ADDI assistance
as a share of the purchase price of the home, and the share of purchase price accounted for
by the buyer’s own cash contributions.
Once again, we did not find a statistically significant difference in foreclosure rates with
most of these variables. Table 8 presents the primary factors that we found to be associated
with variations in foreclosure rates, which were the use of FHA-insured mortgages and the
share of the purchase price provided by the borrower’s own funds. FHA-insured borrowers
had a statistically significant higher foreclosure rate than non-FHA insured homebuyers.
As will be examined in detail below, the association between FHA-insurance and higher
foreclosure rates remained even after controlling for a host of borrower, programmatic, and
market factors. It is not clear why FHA borrowers face a higher foreclosure risk than other
homebuyers, but our hypothesis is that HOME/ADDI borrowers with poorer credit may be
more likely to rely on FHA financing and so present higher risks of foreclosure.
Borrowers with Adjustable Rate Mortgages on average had higher foreclosure rates
compared to other product types, although the difference was not statistically significant. In
part the lack of significance reflects the fact that only a small share of the loans (2 percent)
are identified as having an adjustable rate, which may reflect efforts by PJs to steer borrowers
Note: Shaded cells indicate differences that are statistically significant
at the 5% level.
Sources: Borrower characteristics from HUD’s IDIS database;
Foreclosure incidence from Concentrance Consulting PJ Survey.

20
to fixed-rate loans. However, it is also the
case that PJs were unaware of whether
the loan was fixed- or adjustable-rate in
24 percent of cases, although the fore-
closure rate among these borrowers was
even lower than among those identified as
having fixed-rate loans.
We did not find a statistically significant
association between higher amounts of
HOME/ADDI assistance and lower
foreclosure rates. Although buyers with
the highest amounts of assistance as a
percent of the home price did have lower
foreclosure rates, these differences were
not statistically significant.
27
This result may
reflect the fact that PJs scale the amount
of assistance provided to make the home
affordable, so higher levels of assistance
do not lower the risk of foreclosure. We
did, however, find an association between
higher levels of other types of downpay-
ment assistance from federal, state, and
local sources and lower foreclosure rates.
This may reflect the fact that the layering
of subsidies from different sources results
in greater affordability. Finally, consistent
with expectations, homebuyers with little
of their own equity in the property had
higher foreclosure rates. This likely reflects the fact that the greater equity in the property
helps reduce monthly costs, provides a stronger incentive to maintain homeownership, and
is an indication of the buyer having enough financial stability to be able to generate savings
and thus deal with other financial shocks that may arise.
Variations in Foreclosure Rates by PJ Characteristics
Table 9 presents tabulations of foreclosure rates for origination years 2001 through 2005 by
several PJ characteristics, including type (i.e., city, consortium, county, or state), size (average
annual volume of homebuyers assisted), and census region. We found some dimensions of
each of these variables to be associated with variations in foreclosure rates.
In terms of PJ type, we found the lowest foreclosure rates in counties (1.07 percent) and
states (2.74 percent) compared to cities (5.15 percent) and consortium (4.27 percent). The
differences between these two groups were statistically significant at the 5 percent level. The
27
Of note, while the study was intended to focus on buyers receiving downpayment assistance, 6 percent of
HOME -assisted homebuyers in the sample only received support in the form of amortizing loans and so did
not technically receive downpayment assistance. The multivariate analysis included an indicator for these cases,
but did not find any association with differences in foreclosure rates for the PJ sample, although the risk of
foreclosure was found to be higher for these buyers when only the FHA-IDIS matched data was examined.
Sources: Loan characteristics from PJ Survey responses; HOME/
ADDI and DPA/Borrower Cash from HUD’s IDIS data.

21
difference between counties and states
were also statistically significant. It is not
clear why PJ type should be related to the
rate of foreclosure, aside from issues of
program scale and the amount of funding
that can be offered to individual homebuyers.
In comparing PJs by the size of their
homebuyer programs, we found that smaller
PJs (averaging fewer than 50 homebuyers
per year) had the lowest foreclosure rates,
1.75 percentage points lower than PJs
averaging between 51 and 400 homebuyers
per year, and 0.70 percentage points lower
than the PJs averaging over 400 homebuyers
a year (although only the former difference
is statistically significant). The scale of the
programs may indicate that PJs assisting
fewer homebuyers are better positioned to
screen borrowers for factors that raise the
risk of foreclosure.
Finally, PJs in the Midwest were found to have experienced the highest foreclosure rates
(4.83 percent), followed by the South (3.90 percent), with both the Northeast (2.74 percent)
and West (2.52 percent) having much lower rates. The differences between the Midwest and
both the Northeast and West was statistically significant at the 5 percent level, as was the dif-
ference between the South and the West. These differences likely reflect variations in market
conditions that affect the rate of foreclosure.
Variations in Foreclosure Rates by PJ Program Characteristics
One key characteristic of PJ homebuyer programs were requirements for housing counseling.
Appendix Table C-3 tabulates foreclosure rates by PJ a series of housing counseling
requirements as captured by a survey of responding PJs. Table 10 shows the main finding of
this analysis, which is that homebuyers that did not receiving counseling—as captured by this
survey — had foreclosure rates that were 2.4 percentage points lower than those that did.
One explanation for this counterintuitive
result might be that PJs impose counseling
requirements when they are serving riskier
homebuyers. Or, since a large majority of
PJs (83 percent) provided homeownership
counseling, it may be that there was
simply not enough variation in the use of
counseling to find an effect. The negative
finding could reflect other random factors
associated with the few PJs that did not
provide counseling. Finally, it may also
be that PJs were unable to provide very
Note: Shaded cells indicate differences that are statistically significant
at the 10% level.
Sources: PJ Characteristics based on tabulations of HUD’s IDIS data;
Foreclosure incidence from Concentrance Consulting PJ Survey.
Note: Shaded cells indicate differences that are statistically significant
at the 10% level.
Sources: Borrower characteristics from PJ Survey responses;
Foreclosure incidence from Concentrance Consulting PJ Survey.

22
accurate information on the provision of housing counseling or the quality of counseling
received by clients assisted up to 8 years ago.
We captured a variety of counseling details through the PJ survey, which are presented in
Appendix Table C-3. But in general the pattern of which factors had a statistically significant
association with lower foreclosure rates appeared to be random — with a number of cases
of less intense counseling having lower foreclosure rates. In general, our results did not
provide evidence of benefits of counseling, but this result likely reflects the poor quality of
the data available.
28

Table 11 presents tabulations of foreclosure rates by a series of variables from the PJ survey
related to homebuyer program characteristics, including whether the PJ established any
additional program eligibility requirements beyond HUD’s criteria or took steps to protect
buyers from poor home buying choices. Additional variables related to program eligibility
and provisions to protect homebuyers that were not statistically significant are presented in
Appendix Table C-4.
With regards to program eligibility requirements, the PJ survey asked whether they
established any eligibility requirements other than those specified in HUD’s regulations for
the program. We did not find any association between a PJ establishing higher eligibility
standards than HUD requirements and lower foreclosure rates. However, the PJ survey
also asked whether they used FICO scores in determining eligibility for their homebuyer
program. We did find that foreclosure rates were 1.5 percentage points lower when PJs use
borrower credit scores to determine eligibility (Table 11).
With regard to steps taken to protect buyers from poor home buying choices, the most
significant finding was that in cases where PJs relied on lenders to monitor whether interest
rates charged to buyers were excessive, foreclosure rates were 2 to 3 percentage points
higher. Although, at the same time, PJs that reported they did not monitor interest rates at all
had the lowest foreclosure rates. This may reflect the fact that PJs did not monitor interest
rates at all in cases where borrowers were known to obtain competitively priced loans—such
as through state housing finance agencies.
There was also a statistically significant association between a PJ setting limits on total
monthly debt to income ratios for homebuyers, although the relationship was opposite
of what would be expected with higher debt limits associated with lower foreclosure rates.
However, this characteristic was not statistically significant in the multivariate analysis and
so may be correlated with other housing market or programmatic characteristics that were 

associated with lower foreclosure risk.
29
Finally, PJs that always reviewed appraisals to ensure
that property values were reasonable had somewhat lower foreclosure rates than other PJs,
but this difference was not statistically significant.
28
The result in Table 10 is counter to the finding shown earlier in Table 7 where counseling was associated
with lower foreclosure rates. But as discussed with regards to Table 7, this finding was based on information
reported by PJs in HUD’s IDIS database, while Table 10 is based on information captured by the PJ survey
conducted for this study. As discussed earlier, the result shown in Table 7 was likely biased by the fact that prior
to 2004 almost no borrowers were reported to have received counseling in IDIS, even though the PJ survey
finds that the vast majority of PJs report that counseling was, in fact, required of homebuyers prior to 2004.
29
While the PJ survey attempted to collect the separate information on the borrowers’ monthly housing pay-
ment and gross household income, the variables are missing for about half of the study sample cases. We
therefore were not able to obtain statistically reliable estimates on the relationship between housing payment
burden and foreclosure rates.

23
The PJ survey also asked whether the PJs were informed when a borrower became seriously
delinquent or at risk of foreclosure. If so, the PJ was then asked whether they take any
intervention measures when they find out a borrower became delinquent or at risk of fore-
closure. As shown in the bottom panel of Table 11, we did not find any statistical association
between the responses to these two questions and foreclosure rates.
30
However, given the
Note: Shaded cells indicate differences that are statistically significant at the 10% level.
Sources: Program characteristics from PJ Survey responses; Foreclosure incidence from Concentrance Consulting PJ Survey.
30
The survey also asked the PJs to fill in the specific intervention measures they had taken. These responses,
however, were quite diverse and fairly general and so were unable to identify any meaningful categorization of
the intervention measures. For example, many responses indicated in one way or another that the PJ attempted
to contact the borrower to offer counseling. However, the means of contact and the form of counseling were
generally not identified.

24
limited information on PJ’s information on delinquent borrowers and intervention strategies,
this result should not be interpreted to mean that early intervention among delinquent
borrowers is not effective.
Examination of PJs With High Foreclosure Rates
As a further exploration of how programmatic factors might be associated with foreclosure
rates, we also identified specific PJs with the highest reported foreclosure rates to see if
any programmatic features stood out. Only 40 percent of the PJs that participated in the
survey reported incidences of foreclosure. Among these PJs, 7 had foreclosure rates of
ten percent or greater, 19 had foreclosure rate of between five and ten percent, and 16 had
average foreclosure rate of less than five percent. For the seven ‘high-foreclosure’ PJs we
re-examined program surveys to identify program differences that would explain variances in
performance. This comparison showed that programmatic characteristics of PJs with high fore-
closure rates did not vary greatly from characteristics of the rest of the PJs in the sample.
As was mentioned above a vast majority of all PJs provided homeownership counseling.
Similarly all PJs with foreclosure rates above 10 percent provided counseling to homebuyers.
Data also indicate that high-foreclosure PJs maintained counseling programs that were at
least as rigorous as the programs designed by all PJs. For instance, 73 percent of homebuy-
ers assisted by high-foreclosure PJs received more than 8 hours of counseling, compared to
45 percent for the overall sample. High-foreclosure PJs also provided counseling to a great
share of their clients. All high-foreclosure PJs (100 percent) provided counseling to 75-100
percent of their clients, which is greater than the 77 percent of the overall sample.
PJs with high foreclosure rates adopted eligibility requirements comparable to the overall
sample. All high foreclosure PJs had additional eligibility requirements in place such as
residency in a certain geographic location or additional income limitations. For the overall
sample, 58 percent of PJs had additional eligibility requirements.
31
Like the majority of all
PJs, most PJs with high-foreclosure rates (86 percent) did not use credit scores to determine
homebuyer eligibility.
There is also no indication that programs run by PJs with a relatively high level of
foreclosures lacked provisions for homebuyer protection. Most high-foreclosure PJs (86
percent) always reviewed property appraisals to verify their reasonableness, which is slightly
higher than the 81 percent for the overall sample. Also these PJ imposed more conservative
limits on debt-to-income ratios: 57 percent of these PJs had a limit of 41 percentage points
compared to 23 percent for the overall sample. High-foreclosure PJ used published rates,
local lenders and loan officers in equal measure to monitor whether interest rates charged to
buyers were excessive: each method was used by 29 percent of high-foreclosure PJs.
In summary, a closer examination of the surveys did not reveal striking programmatic dif-
ferences that could explain the differences in foreclosure rates among PJs. This was also true
for PJs with exceptionally low foreclosure rates (less than 5 percent).
32
31
Here the share of PJs with additional eligibility requirements is weighted based on the number of homebuy-
ers assisted.
32
There are additional programmatic characteristics that might be associated with differences in foreclosure
rates that were not available to this study; such as whether the PJ relies on subgrantees to administer their
homeownership programs.

25
Variations in Foreclosure Rates by Neighborhood Characteristics
Table 12 presents average values for different neighborhood characteristics for homebuyers
that experienced a foreclosure compared to those that did not. The characteristics we
examined included a range of demographic and housing market variables from the 2000
decennial census. Of these characteristics, the only ones that exhibited a statistically
significant difference between foreclosed and not-foreclosed homebuyers were the tract
median income as a percent of the area median income and the percent minority. Foreclosed
homebuyers were more likely to live in areas with lower incomes and with higher minority
populations. However, as shown in the multivariate analysis reported in a later section of
this report, these two neighborhood characteristics are not found to have an association with
higher foreclosure rates once borrower, loan, and other factors are taken into account.
Other neighborhood
measures that we examined
included the share of mort-
gage loans originated during
2004 to 2006 that were high
cost loans as reported in the
HMDA data.
33, 34
Foreclosed
homebuyers were found
to live in areas with higher
shares of high cost loans.
This association may have a
variety of explanations. For
example, it may indicate that
these buyers were more likely
to have used high cost loans
themselves and so faced a
higher risk of foreclosure.
Or the result may indicate
that neighborhoods with
higher high cost loan shares
have had higher levels of
foreclosures, which in turn
have had a negative impact
on local housing prices
and other aspects of the
neighborhood’s quality of life
that has decreased homebuy-
ers’ incentives to maintain
homeownership.
33
A loan record in the HMDA data is considered high cost if the “rate spread” is greater than 3 percentage
points for a first lien loan or 5 percentage points for a subordinate lien loan, where the rate spread is defined as
the spread between APR on a loan and the yield on Treasury securities with comparable maturity.
34
Information was generally not available on the mortgage interest rates for HOME/ADDI homebuyers so we
could not determine whether each HOME/ADDI loan was a high cost loan.
Note: Shaded cells indicate differences that are statistically significant at the 5% level.
Sources: Neighborhood characteristics based on tabulations of 2000 decennial census
data except for high cost loan share from Home Mortgage Disclosure Act data, change
in house price from OFHEO home price index, and unemployment rate from Bureau of
Labor Statistics; Foreclosure incidence from Concentrance Consulting PJ Survey.

26
The change in the OFHEO house price index from any post-2000 peak was intended to
capture whether declining home prices have contributed to foreclosures.
35
However, our
findings indicated that foreclosed buyers lived in areas that had experienced less home price
depreciation on average. Finally, we used the June 2008 unemployment rate to examine
whether poor economic conditions had contributed to foreclosure risk, but no difference
was found between foreclosed and non-foreclosed homebuyers through using this measure.
Multivariate Analysis of Foreclosure Rates
In our assessment, many of the individual variables assessed in the previous sections were
probably highly correlated with each other. As a result, our examination of association
between individual characteristics and foreclosure rates may have been confounded by the
association of other variables with the single characteristics we examined. For example,
PJs may be more likely to provide counseling when they are serving lower income home-
buyers—thus, the higher foreclosure rate found above with the provision of counseling
may have reflected the fact that these borrowers began the process with a greater risk of
foreclosure. In this section we present the results of our multivariate regression analysis to
simultaneously account for a number of the most salient borrower, loan, program, and
geographic characteristics to see which factors were most strongly associated with a greater
risk of foreclosure.
Specifically, we estimated a logit model where the dependent variable was 1 for homebuyers
that experienced a foreclosure and 0 otherwise. We present the estimation results for each
independent variable in the form of an odds ratio to assist in interpreting the magnitude
of these coefficients. Odds ratios above 1 indicate the variable increased the likelihood of
foreclosure while odds ratios below 1 decreased the probability of foreclosure. Appendix D
provides great details regarding the interpretation of the model coefficients.
Appendix Table C-5 presents the results of the estimated logit models of the probability of
foreclosure. Given the large number of variables we investigated in the univariate analysis,
we generally limited the number of variables we included as explanatory variables in this
analysis to those that we found to be statistically significant in the univariate analysis and
those that were found to be important determinants of foreclosure in the mortgage default
literature. Since this model still had a lengthy list of explanatory variables with many that
were not statistically significant, a second model was estimated including only those variables
that were statistically significant in the first model. The results of this second model largely
confirmed the findings from the univariate analysis, with a few exceptions noted below. The
variables that we found to have a statistically significant relationship with the incidence of
foreclosure in the multivariate analysis included:
Region: While the univariate analysis found that the Midwest had higher foreclosure• rates
than other regions, this effect was not evident in the multivariate analysis, suggesting
other factors correlated with region were responsible for this association;
35
It might be expected that the share of high cost loans and declines in home prices would have a high cor-
relation given that high cost loans are much more likely to end in foreclosure and so contribute to falling home
prices in the market. However, the home price index is measured at the metropolitan area level while the high
cost loan share is measured at the census tract level, so there is not likely to be a strong correlation in these
measures. In fact, the correlation between these two variables is fairly low—just 0.14 in the HOME/ADDI
sample and 0.04 in the IDIS-FHA matched data.

27
FHA Insured Status: Even after controlling for other variables, we still found FHA •
insured loans to have a probability of being foreclosed that was 2.3 times as large as for
non-FHA insured buyers;
Adjustable Rate Mortgage (ARM) Type: Compared to other mortgage product types, •
adjustable rate loans were 2.6 times as likely to experience a foreclosure—although only a
very small share of borrowers used adjustable rate loans. ARM loans were concentrated
among a few PJs (six PJs accounted for 74 percent of all ARM loans in the sample). Five
PJs had more than 20 percent ARM loans in their sample and two more PJs had more
than 10 percent. However, the overall foreclosure rates at these PJs was not higher than
average.
PJ Type: Consortiums and Cities were found to have the highest foreclosure rate relative •
to states (the reference category), with counties having the lowest rate (although not
statistically different from states);
Home purchase price (in $10,000 units): Higher prices were associated with lower •
foreclosure rates, but given that the odds ratio was very close to 1, the association was
not large in magnitude;
Other DPA: Buyers with downpayment assistance of more than 10 percent of the •
purchase price from sources other than the HOME/ADDI program had a lower risk of
foreclosure relative to buyers without this type of assistance;
Declines in house prices: Every additional 1 percent decline in house prices in the market •
area relative to the peak price since year 2000 increased the likelihood of foreclosure by
about 9 percent;
Higher shares of high cost loans: An increase in the high cost loan share by 1 percent is •
associated with an increased risk of foreclosure of 2 percent; and
Eligibility requirements and program protections for homebuyers: Programs that set •
limits on homebuyers’ credit scores had foreclosure rates that were 55 percent less than
PJs that did not take this step, while those that relied on lenders to monitor interest rates
had foreclosure rates that were 3.33 times as large as those for other PJs.
36

There were a number of other variables we included in the logit model that were not statisti-
cally significant in the multivariate analysis. Among these were borrower and neighborhood
racial composition, both of which were significant in the univarite analysis but neither of
which were significant in the logit model. One of the key variables of interest was whether
homebuyers receiving housing counseling were better able to sustain homeownership. We
had two measures available — the indicator in the IDIS data and the PJ’s survey response.
In the univariate analysis, the IDIS variable suggested that counseling was associated with a
reduction in foreclosure risk, while the PJ survey data found the opposite. In the logit models
we first used the IDIS variable. While the odds ratio indicated that counseling does reduce
the risk of foreclosure, it was not statistically significant in either Model 1 or Model 2. We did
estimate models using the PJ survey variable in place of the IDIS variable but it indicated
counseling increased the risk of foreclosure but was not statistically significant. Thus, the
results did not provide evidence that counseling reduces foreclosure risk, but this may reflect
the poor quality of the information available through IDIS and the retrospective survey of PJs.
36
PJs that always checked appraisals also had lower risks of foreclosure than other PJs, but this effect was not
statistically significant in model 2 with a shorter list of statistically significant variables.

28
B. Delinquency and Foreclosure Among FHA-Insured HOME/
ADDI Participants
Higher foreclosure rates among FHA-insured HOME/ADDI participants were in part ;
due to a greater concentration of these buyers in markets with declining home prices.
Lower shares of FHA-insured HOME/ADDI participants were assisted by PJs ;
that use credit scores to determine program eligibility, which is consistent with the
hypothesis that the FHA-insured buyers represent a riskier segment of HOME/
ADDI-assisted households.
The cumulative risk of foreclosure of HOME/ADDI-assisted homebuyers with FHA- ;
insured mortgages was lower for those buying homes in more recent years than earlier
in this decade. Available information on delinquency rates also suggests that more
recent cohorts of buyers were not experiencing higher delinquency rates, indicating
that higher foreclosure rates should not be expected.
Multivariate analysis of the risk of foreclosure among these FHA-insured homebuyers ;
largely confirms the findings from the PJ survey regarding the factors associated with
foreclosure and that more recent homebuyer cohorts face a lower risk of foreclosure.
Section Highlights
There are two key limitations to the data we collected through the PJ survey. First, it does
not provide any indication of homebuyers’ mortgage delinquency status nor capture when
foreclosures occurred following home purchase. This information would be a better indica-
tor of financial distress for more recent groups of homebuyers than would foreclosures
alone, which often occur at the end of a lengthy process. Second, the PJ survey and IDIS
data only have a limited set of borrower and loan term variables that can be used to assess
the factors associated with foreclosures. To address both limitations, we obtained more
detailed data on borrower and loan characteristics as well as delinquency status for HOME/
ADDI-assisted homebuyers who used FHA-insured mortgages to purchase their homes.
With this more detailed IDIS-FHA matched data we sought to better understand the likely
default risk for more recent groups of HOME/ADDI-assisted homebuyers and achieve
a more complete analysis of factors that may contribute to the risk of foreclosure. In
the following section we first compared HOME/ADDI-assisted homebuyers that used
FHA-insured mortgages with those that did not to provide a sense of how these two groups
may differ in regards to borrower, PJ, program, and neighborhood characteristics. Next,
we present tabulations of foreclosure and delinquency rates by year of origin to explore
whether the relative risk of these loans was increasing or decreasing over time. Finally, we
present the results of a multivariate analysis of the factors associated with both foreclosure
and delinquency.
Comparison of HOME/ADDI Homebuyers by Use of FHA-Insured Mortgages
(Survey Data)
Table 13 compares the foreclosure rates from the PJ survey data for HOME/ADDI-assisted
homebuyers that were identified as using FHA-insured mortgages with those that did not
have an FHA-insured mortgage and those whose FHA-insurance status was unknown to

29
PJs. As shown, the foreclosure rate for FHA-insured homebuyers was more than twice
as high as the rate for non-FHA-insured homebuyers as well as those homebuyers whose
FHA-insurance status was unknown. FHA-insured homebuyers comprised a little more than
a third of the overall sample, with a similar share not having FHA insurance and a little less
than 30 percent having an unknown FHA-insurance status.
The multivariate analysis presented in the previous section found that even controlling for a
variety of borrower, loan, neighborhood, and PJ characteristics, FHA-insured homebuyers
were more likely to experience a foreclosure than other homebuyers. Unfortunately, it
was not clear from the available data why FHA-insured borrowers were more likely to be
foreclosed. However, the most likely explanation is that HOME/ADDI homebuyers with
poorer credit histories were more likely to have to opt for FHA rather than conventional
prime mortgages. This would be consistent both with FHA’s role in serving this segment
of the mortgage market and with the higher foreclosure rates observed. But in interpreting
the FHA foreclosure and delinquency rates presented below it is helpful to understand how
FHA and other HOME/ADDI buyers differ on characteristics for which data are available.
Table 14 compares FHA, non-FHA, and unknown buyers on homebuyer characteristics
that were found to have some association with foreclosure rates in the first half of this
chapter. For the most part, the differences between FHA-insured and non-FHA buyers were
small. The one characteristic that did show a large difference was the share of homebuyers
reported in IDIS to have received counseling. Only 18 percent of FHA-insured homebuyers
were identified in IDIS as receiving counseling compared to 38 percent of non-FHA-insured
buyers. As described earlier, it was not clear how accurate the counseling variable is in IDIS,
particularly prior to 2004, but this difference was substantial.
Table 15 compares FHA, non-FHA, and unknown buyers on selected characteristics of
PJs and their homeownership programs that were found to have some association with
foreclosure rates in the analysis presented in the previous part of this section. FHA-insured
borrowers were more concentrated in the Midwest and South, which had higher foreclosure
rates than the other regions. They were also more likely to have been assisted by City PJs,
which had the highest foreclosure rates of all PJ types, but they were also more likely to be
assisted by State PJs that had a lower than average foreclosure rate.
Sources: HUD’s IDIS database and Concentrance Consulting PJ Survey.

30
In terms of program character-
istics, the two factors found to
be associated with foreclosure
rates were cases where PJs used
credit scores to determine pro-
gram eligibility and did not rely
on lenders to monitor mortgage
interest rates. FHA-insured bor-
rowers did stand out as being
much less likely to be assisted
by PJs that used credit scores to
determine program eligibility,
which is consistent with the
hypothesis that the FHA-
insured homebuyers assisted by
the HOME/ADDI programs
had poorer credit histories that
limited their access to prime
mortgages. There were only
small differences between the
homebuyer categories on the
other program characteristics,
although FHA-insured home-
buyers were slightly more likely
to be assisted by PJs that relied
on lenders to monitor interest
rates.
Finally, Table 16 compares
average neighborhood charac-
teristics for FHA-insured and
other homebuyers. Once again,
there were few large differences
in most of these characteristics
across the different types of
homebuyers. The one exception
was the average decline in home
prices from the peak achieved
since the year 2000. Among
FHA-insured homebuyers the
average price decline was 2.3 percentage points, compared to 0.9 percentage points for non-
FHA-insured homebuyers. Thus, one factor contributing to higher foreclosure rates among
FHA-insured homebuyers may have been weak housing market conditions in areas where
these homebuyers were concentrated.
In summary, FHA-insured homebuyers had foreclosure rates that were more than twice as
high as the rates among other HOME/ADDI-assisted homebuyers. For the most part, there
were few important differences among homebuyers by their FHA-insurance status. Among
Sources: Borrower characteristics from HUD’s IDIS database; Foreclosure incidence
from Concentrance Consulting PJ Survey.
Sources: Borrower characteristics from HUD’s IDIS database; Foreclosure
incidence from Concentrance Consulting PJ Survey.

31
the factors that were different,
the most important seemed to
be those related to geographic
location, with FHA-insured
homebuyers more heavily
concentrated in the Midwest and
South and in market areas that
have experienced greater declines
in home prices in recent years.
FHA-insured homebuyers were
also less likely to be assisted
by PJs that used credit scores
to determine eligibility for
assistance, which was consistent
with the hypothesis that higher
foreclosure rates among FHA-
insured homebuyers may reflect
the fact that this group opts for
an FHA mortgage because their
access to prime credit is limited.
Foreclosure and Delinquency Rates Among HOME/ADDI-Assisted Home-
buyers With FHA-Insured Mortgages (FHA-IDIS Match Data)
In this section, we turn to data on mortgage status using matched IDIS-FHA data. While the
survey data identified roughly 1,800 HOME/ADDI homebuyers using FHA insurance, these
matched data provide information on nearly 48,000 of these homebuyers. Chart 3 shows
the cumulative foreclosure rate for FHA-insured homebuyers from the matched IDIS-FHA
data. The chart shows the foreclosure rate by the number of years since origination, which
provided an opportunity to assess whether more recent groups of assisted homebuyers had
higher or lower foreclosure rates relative to earlier groups. As shown, homebuyers assisted
in 2000 consistently had the highest foreclosure rates over time, followed by the 2001 and
2002 homebuyer cohorts. Homebuyers from 2003 through 2005 all had similar foreclosure
rate trajectories that were lower than the rates experienced by the 2000 to 2002 cohorts.
The trends shown in this chart suggest that foreclosure rates generally improved in the
HOME/ADDI programs from 2000 through 2003. This observation is supported by the
multivariate analysis of hazard of foreclosure reported in the next section where factors
such as the seasoning of the loan (that is, length of time since loan origination) are taken
into consideration.
Chart 4 presents the annual share of FHA-insured homebuyers in the matched IDIS-FHA
data that were foreclosed by years since origination. This chart highlights the timing of
foreclosures relative to when homes were purchased. For each homebuyer cohort the chart
shows that foreclosure rates have peaked in the third year. Thus, annual foreclosure rates
among most of these groups are already declining.
One of the reasons for examining FHA-insured homebuyers assisted by the HOME/
ADDI programs was to examine delinquency rates among these loans to see whether more
recent homebuyers were having difficulty meeting their mortgage obligations even if their
Sources: Neighborhood characteristics based on tabulations of 2000 decennial
census data except for high cost loan share from Home Mortgage Disclosure Act
data, change in house price from OFHEO home price index, and unemployment
rate from Bureau of Labor Statistics; Foreclosure incidence from Concentrance
Consulting PJ Survey.

32
Chart 3:
Cumulative Foreclosure Rates Among FHA-Insured HOME/ADDI Homebuyers by Year of
Origination
Chart 4:
Annual Foreclosure Rates Among FHA-Insured HOME/ADDI Homebuyers
by Year of Origination

33
foreclosure rates were not yet elevated. Chart 5 presents trends in the time from origination
until first default, which is defined as being 90-days delinquent. Until 2006 FHA servicers
were required to report to FHA whenever a borrower became 90-days delinquent and thus
had defaulted on their mortgage obligation. Beginning in 2006 FHA required servicers
to report on all 30-day delinquencies to have better information on when borrowers first
faced difficulties in meeting their mortgage obligations. As a result of this change, reported
“defaults” rates spiked beginning in 2006 as these rates included 30-day delinquencies. In
order to have a suitable comparison for time to first default for all loan cohorts, Chart 5 only
reports on defaults through 2005.
37

The trends shown in Chart 3 suggest that more recent cohorts of HOME/ADDI assisted
homebuyers may actually be faring better in terms of cumulative foreclosure rates than those
assisted prior to 2003. Chart 5 shows similar trends in the time to first default for these same
homebuyers through 2005. The 2000 and 2001 homebuyer cohorts have experienced higher
levels of first default over the life of these loans. However, while the 2002 cohort has had
fairly high levels of foreclosure, it has experienced the lowest levels of first default. The
other loan cohorts are in the middle. Thus, taken together, the trends in foreclosure and first
37
In 2006 FHA modified requirements for reporting by loan servicers on mortgage default. Previously, ser-
vicers were required to report to FHA when borrowers were 90-days delinquent and thus had defaulted on
their mortgage. Beginning in 2006 FHA required servicers to report on all 30-day delinquencies to have better
information on when borrowers first faced difficulties in meeting their mortgage obligations. As a result of
this change, reported “default” rates spiked beginning in 2006 as these rates included 30-day delinquencies.
In order to have a suitable comparison for time to first default for all loan cohorts, Chart 4 only reports on
defaults through 2005.
Chart 5:
Time From Origination Until First Default Among FHA-Insured HOME/ADDI Homebuyers
by Year of Origination

34
default rates over time for these cohorts of homebuyers suggests that the risk of foreclosure
was lower in more recent years than earlier in this decade.
Multivariate Analysis of the Hazard of Foreclosure
For each foreclosure case, the FHA database includes a field indicating the date when
foreclosure proceedings are completed. This information allows us to model not only the
incidence of foreclosure but also the timing of foreclosure.
38
The study of time (from
loan origination) to foreclosure is important because it is a measure of the duration of
homeownership for the assisted borrowers. This form of econometric model also takes
into account differences in the period of time available to observe whether a foreclosure
has occurred when estimating coefficients. For example, the model allows us to account for
loans originated in 2005 where we have less than three full years over which a foreclosure
could occur.
In the econometric literature, the appropriate analytic tool for this purpose is a type of
regression model called a hazard or duration model.
39
The dependent variable in such a model
measures the length of time (in days) from loan origination to foreclosure. The estimated
coefficients reveal the independent effect of each explanatory variable on the dependent
variable, in hazard ratio format.
40
For a binary indicator variable (such as gender), a hazard
ratio greater than one suggests that, compared to the reference category, the presence of
the borrower or loan characteristic is associated with a higher hazard or risk of foreclosure.
On the other hand, if the estimated hazard ratio is less than one, it implies that the presence
of the characteristic is associated with a lower hazard of foreclosure. Appendix D provides
great details regarding the interpretation of the model coefficients.
In reviewing the results of the hazard model it should be noted that there are several reasons
why the findings may differ from those presented earlier. First, the results are likely to differ
from univariate analysis since the hazard model shows the association between a specific
borrower or PJ characteristic and the risk of foreclosure while simultaneously accounting
for all other variables. Second, the hazard analysis is only conducted for HOME-assisted
homebuyers that received FHA insured mortgage, so the results only relate to this subset of
HOME assisted buyers.
Appendix Table C-6 presents the results of the estimated proportional hazard model of
foreclosure. Given the large sample size, it is not surprising that the many of the indepen-
dent variables are found to have a statistically significant relationship with the probability of
foreclosure. Specifically, the statistically significant variables include the following:
38
While we would have liked to model the time to first default, the change in FHA reporting requirements de-
scribed above meant we had very limited information on the default incidence among recent cohorts of loans,
so modeling time to first default would not shed much light on difference in default rates between different
origination year cohorts.
39
Specifically, we estimated a Cox proportion hazards model, which is often used in the housing finance litera-
ture to study factors associated with the onset of mortgage default and foreclosure.
40
The hazard of foreclosure is a measure of the risk of foreclosure over a fixed time interval.

35
41
“Other” race includes Native American, Asian, and Alaska Native.
42
The finding that Hispanics had a lower risk of foreclosure than whites is somewhat unexpected. A possible
explanation is that the lower foreclosure risk for this group of borrowers reflects other characteristics (in par-
ticular, credit scores and location in specific states) that are not captured in our model.

38

HAZARD LEVEL

VARIABLE EXPLANATION

!

Origination cohort: Compared to the older cohorts, the more
recent cohorts of borrowers had a lower hazard of foreclosure and
therefore a longer duration of homeownership, after controlling for
the fact that the more recent cohorts had a shorter observation
period. In other words, the recent cohorts appeared to include less
risky loans even after controlling for all of the other explanatory
variables listed. This finding is consistent with the results presented in
Chart 2. For example, the model indicates that the hazard rate of
foreclosure for borrowers in the 2005 cohort was 72.8 percent of the
hazard rate of borrowers in the 2000 cohort.
!
Region: Borrowers located in the Northeast and the West had a
lower hazard of foreclosure, with the Midwest being the reference in
this comparison.
"
Mortgage-payment-to-income ratio: Consistent with our
expectation, borrower’s payment-to-income burden was positively
correlated with the hazard of foreclosure. The higher the ratio, the
greater chance of foreclosure. A 1 percentage point increase in the
ratio was associated with a 1 percentage point increase in foreclosure
risk.
!
Borrower age: All else being equal, older borrowers had a lower
risk of foreclosure. Each additional year increase in the borrower’s
age was associated with a 2 percent decrease in the hazard of
foreclosure.
!
Gender: Female borrowers had a lower hazard of foreclosure.
!
Marital status: Compared to the never-married borrowers with
similar characteristics, married couples had a lower hazard of
foreclosure.
!
Race: Compared to Non-Hispanic White borrowers, Hispanics and
borrowers of “Other” race had a lower hazard of foreclosure and
thus a longer homeownership duration.
41,

42

41
“Other” race includes Native American, Asian, and Alaska Native.
42
The finding that Hispanics had a lower risk of foreclosure than whites is somewhat unexpected. A
possible explanation is that the lower foreclosure risk for this group of borrowers reflects other
characteristics (in particular, credit scores and location in specific states) that are not captured in our model.

36
43
This result is different from the finding in Table 9 where PJs with 51-400 borrowers had the highest foreclo-
sure rate. This discrepancy is due to different analysis methods used. Results in table 9 are based on univari-
ate analysis, while the finding above is based on multivariate analysis which controls for a greater number of
variables.

39

HAZARD LEVEL

VARIABLE EXPLANATION
!
Property type: Assisted borrowers who purchased newly
constructed homes with the HOME/ADDI funds experienced a
lower risk of foreclosure (27 percent smaller in terms of hazard rate
for borrowers who acquired existing homes).
!
Borrower income relative to area median income: All else being
equal, homeowners whose incomes were high relative to the area
median had a lower hazard of foreclosure.
“
PJ type: Controlling for other characteristics, borrowers assisted by
city PJs on average had a higher hazard of foreclosure and therefore
a shorter duration of homeownership.
”
PJ program size: The foreclosure hazard rate was higher for large
PJs (defined as those with on average 400+ borrowers over the study
period).
43
On the other hand, small PJs (defined as those with fewer
than 50 borrowers) had a lower hazard of foreclosure, although this
difference was not statistically significant.
“
Declines in house prices: Declines in house prices relative to
peak price since 2000 were associated with an increased hazard of
foreclosure for the borrowers.
”
Share of high cost loans in Census tract: A 1-percent increase in
the share of high cost loans in the neighborhood was associated
with a 2 percent increase in hazard of foreclosure.
“
Household income in Census tract relative to area median
income: Neighborhood income level was negatively correlated with
hazard of foreclosure. The lower the income, the higher the risk of
foreclosure.
!
Percent racial minorities in Census tract: Every 1-percent
increase in the share of racial minorities in a neighborhood was
associated with a 1 percent reduction in the hazard rate of
foreclosure.
”
Number of dependents in the borrower’s household: Holding
other factors constant, borrowers with more dependents in
household had elevated risk of foreclosure. Each additional
dependent increased the hazard of foreclosure by 14 percent.

43
This result is different from the finding in Table 9 where PJs with 51-400 borrowers had the highest
foreclosure rate. This discrepancy is due to different analysis methods used. Results in table 9 are based on
univariate analysis, while the finding above is based on multivariate analysis which controls for a greater
number of variables.

37
Among the variables that were not statistically significant included those related to the Loan
to Value (LTV) ratio, the size of the mortgage, the unemployment rate, and whether the
borrower received counseling (as indicated in the IDIS data). In general, the results are quite
consistent with the multivariate analysis of the PJ survey data. The primary additional insight
that comes from this analysis is that since 2000 the risk of foreclosure has been declining for
successive cohorts of homebuyers through the HOME/ADDI program.

40

HAZARD LEVEL

VARIABLE EXPLANATION
“
Gift funds from nonprofit organizations: The hazard of
foreclosure was higher (by 24 percent) for borrowers who received
gift funds from nonprofit agencies.
”
Borrower’s Equity: Homebuyers with none of their own funds
invested in the home had a 20 percent higher foreclosure hazard.
!
Level of HOME/ADDI Assistance: Buyers with HOME/ADDI
assistance of more than 20 percent of the purchase price had a
22 percent lower foreclosure hazard.
"
Form of HOME Assistance: Buyers who only received HOME
assistance in the form of an amortizing loan compared to a grant or a
deferred payment loan had a 20 percent higher foreclosure hazard.

Among the variables that were not statistically significant included those related to the Loan
to Value (LTV) ratio, the size of the mortgage, the unemployment rate, and whether the
borrower received counseling (as indicated in the IDIS data). In general, the results are quite
consistent with the multivariate analysis of the PJ survey data. The primary additional
insight that comes from this analysis is that since 2000 the risk of foreclosure has been
declining for successive cohorts of homebuyers through the HOME/ADDI program.

38

39
IV. SUMMARY AND CONCLUSIONS
The principal finding of this study is that, in comparison to relevant market benchmarks,
foreclosure rates among homebuyers assisted through the HOME/ADDI programs are
not excessive. In comparison to FHA-insured homebuyers overall, who comprise a similar
population of lower-income first-time homebuyers, foreclosure rates in the HOME/ADDI
program are consistently lower for all those assisted between 2001 and 2005. Over this
period, the HOME/ADDI foreclosure rate is estimated to be 1.2 percentage points less
(or 25 percent lower) than the rate among FHA-insured borrowers overall. Considering
homebuyers assisted in 2001—those with the longest period of observation — the HOME/
ADDI foreclosure rate as of early 2008 is estimated to be 5.3 percent. In comparison, the
rate for FHA-insured loans overall was 6.5 percent. Based on information gathered by the
Mortgage Banker’s Association Mortgage Delinquency Survey, both of these rates appear
to be substantially below the foreclosure rates experienced in the sub-prime market. The
conclusion of this study is that the HOME/ADDI program has been successful at helping
low-income families to achieve and sustain homeownership.
As a test of the accuracy of the foreclosure rates reported by PJs, the subset of FHA-insured
borrowers among the study sample were identified in FHA’s own administrative data to see
how FHA’s foreclosure rate compared to the rate reported by PJs. This comparison found
that for each year between 2001 and 2005 the foreclosure rate found in FHA’s administrative
data was contained within the 95-percent confidence interval surrounding the PJ reported
foreclosure rate, meaning that the variations between these two measures were likely due to
normal sampling variation. Of the five estimated foreclosure rates for borrowers assisted in
2001 through 2005, 3 were lower than the rate in FHA’s data and 2 were higher. On average
across all five years, the PJ reported foreclosure rates were 9 percent lower than the FHA
reported rate. Even if the PJ estimates of the overall foreclosure rate among HOME/
ADDI-assisted borrowers were increased by 9 percent, these rates would still be lower than
the rate among all FHA-insured borrowers.
Using the matched FHA-IDIS data, foreclosure rates experienced among FHA-insured
homebuyers benefiting from HOME/ADDI assistance were also compared with the rates
among FHA-insured borrowers relying on other sources of downpayment assistance.
HOME/ADDI-assisted buyers did have higher foreclosure rates than buyers who relied on
their own funds or family members for their downpayment, likely reflecting the stronger
financial position of these buyers. But HOME/ADDI-assisted buyers had lower foreclosure
rates than buyers receiving downpayment assistance from government agencies generally as
well as those getting their downpayments through nonprofit agencies, which consist largely
of so-called seller-funded downpayment programs. Seller-funded downpayment assistance
has been associated with very high foreclosure rates. In comparison, the foreclosure rates
among HOME/ADDI-assisted buyers are on average 40 percent lower.
This study also examined programmatic circumstances that contributed to higher or lower
foreclosure rates. The PJ survey gathered a variety of information on the use of counseling
to prepare homebuyers for the responsibilities of homeownership, the use of eligibility
criteria beyond those required by HOME program regulations, and program features that
were designed to protect program participants from making poor homebuying decisions. For

40
the most part, we found little statistically significant variation in foreclosure rates with home-
buyer program characteristics. This may well reflect the fact that, as foreclosure rates were
low for the HOME/ADDI program, there was little variation to explain. To the extent that
some PJs experienced higher foreclosure rates than others, these differences may be largely
attributable to differences in market conditions rather than how PJs operate their homebuyer
programs. Nonetheless, both univariate and multivariate analysis did find some reduction
in foreclosure rates when PJs imposed eligibility requirements related to credit scores and
did not rely on lenders to monitor for excessive interest rates. The analysis also found that
homebuyers who had greater equity in their homes through downpayment assistance and
borrower cash experienced lower foreclosure rates. Thus, programs that are able to provide
deeper levels of subsidy for homebuyers may also reduce the risk of foreclosure.
Housing counseling is one of the key approaches employed in the HOME/ADDI program
to help participants prepare for homeownership. However, our analysis was unable to find
any statistically significant association between the receipt of counseling and lower risk
of foreclosure. In part, this may reflect the limitations of the two measures of counseling
available — one reported in HUD’s IDIS data at the time buyers are assisted and the other
gathered through the PJ survey. The IDIS variable was largely not used prior to 2004 and
so is only available for a limited period of time. It is also not known how accurate the field
is even in 2004 and 2005 as this information is not central to the purpose of the IDIS
system, which is to track expenditures through HUD grant programs. There was a weak
association found between this indicator of counseling and lower foreclosure risk, but the
result was not statistically significant. The PJ survey information is also likely to be prone to
error as the survey sought retrospective information about homebuyers assisted up to eight
years earlier. Current PJ staff had limited ability to share historic information on program
administration nuances due to inevitable staff turnover and loss of institutional knowledge.
The information gathered through the PJ survey showed that homebuyers reported to have
been counseled were more likely to experience a foreclosure, but this association was not
statistically significant in the multivariate analysis. In short, the study did not provide any
evidence that counseling reduces the risk of foreclosure, but this conclusion is by no means
definitive, given data limitations.
One of the factors most strongly associated with higher foreclosure rates among HOME/
ADDI-assisted homebuyers was the use of FHA-insured mortgages. There were few
important differences between the characteristics of homebuyers who had FHA-insured
mortgages and those who did not. There were some significant differences in the geographic
locations of FHA-insured homebuyers, who were more concentrated in the Midwest and
South (where foreclosures were generally higher), in census tracts that experienced declines
in home prices in recent years, and in census tracts with high shares of high cost mortgages.
But even when controlling for these differences, FHA-insured homebuyers were still found
to have higher foreclosure rates. Our hypothesis is that HOME/ADDI-assisted homebuyers
who had poorer credit histories were more likely to have to rely on FHA-insured mortgages
rather than prime mortgages. In this case, the higher foreclosure rates among FHA-insured
homebuyers would simply reflect the fact that these were riskier buyers than other HOME/
ADDI-assisted buyers. One result that is consistent with this hypothesis is the finding that
FHA-insured homebuyers were less likely to have been assisted by PJs that used credit scores
to determine program eligibility. Notably, even though FHA-insured HOME/ADDI-assisted
homebuyers had higher foreclosure rates than other HOME/ADDI-assisted homebuyers,

41
their foreclosure rate was still much lower than the rates experienced by buyers using seller-
provided downpayment assistance and only slightly higher than the foreclosure rates of the
overall FHA-insured portfolio.
The study also analyzed data on all FHA-insured homebuyers who could be matched to
HUD’s IDIS data to explore trends over time in foreclosure and delinquency rates for
different cohorts of assisted-homebuyers by year of home purchase. This analysis found
that, controlling for the time exposed to default risk, homebuyers assisted in 2003 through
2005 were experiencing lower foreclosure rates than those assisted in 2000 through 2002.
This finding suggests that the HOME/ADDI program was not experiencing an increase
in foreclosure risk, in the first part of this decade, unlike the rest of the mortgage market.
Information on delinquency rates also suggests that there has not been any increase in
financial distress among these homebuyers in more recent years. The multivariate analysis of
the matched IDIS-FHA data confirmed a number of findings from the analysis of PJ survey
data, with the primary additional insight being that since 2000 each successive cohort of
HOME/ADDI-assisted homebuyers has experienced a lower risk of foreclosure.
Overall, the findings from this study suggest that the HOME/ADDI program has been
fairly successful at fostering sustainable homeownership for low-income families and indi-
viduals. Unfortunately, the results do not shed much light on the specific approaches taken
by PJs to reduce foreclosure risk—although this may primarily reflect the fact that overall the
risk of foreclosure throughout the program is quite low and that most PJs that are operating
homebuyer programs are doing a good job of fostering sustainable homeownership. Further
research focused specifically on programmatic approaches to reduce foreclosure risk would
allow for a more in-depth look at the effect of those processes on delinquency and default
rates.

42