Housing Finance Working Paper Series
HF-008, Do FHA Multifamily Mortgage Insurance Programs Provide Affordable Housing and Serve Underserved Areas? An Analysis of FHA’s Fiscal Year 1997 Book of Business and Comparison with the GSEs, by Edward J. Szymanoski and Susan J. Donahue, October 1999.
This paper analyzes the rent affordability of about 67,500 unassisted multifamily units, which were insured by FHA during Fiscal Year 1997, and the proportion of these units located in underserved areas. In addition, the paper also compares FHA’s FY 1997 multifamily loans with 1997 multifamily loans purchased by Fannie Mae and Freddie Mac (the government-sponsored enterprises, or GSEs) in regard to rent affordability and proportions of units located in underserved areas. The analysis shows that FHA is providing a substantial amount of modest cost rental housing and serving underserved areas with its unassisted multifamily mortgage insurance programs. About 95 percent of the FHA units in this study (including new construction and existing housing) were affordable at 100 percent of area median income, and over 40 percent were affordable at 60 percent of area median income. About 40 percent of the FHA units in the study were located in underserved areas. In drawing comparisons between FHA and the GSEs, the paper first notes differences as well as similarities between the multifamily programs of these respective agencies – for example, FHA offers higher loan-to-value ratios, lower debt service coverage ratios, and longer fixed-rate mortgage terms than do the GSEs. These underwriting differences notwithstanding, FHA’s affordability and underserved area percentages for FY 1997 were very similar to those of comparable Fannie Mae and Freddie Mac mortgage purchases.