Higher-Income Households Soon to Be FHA Borrower Majority?

A new study finds the Federal Housing Administration is largely serving a population it didn’t necessarily set out to assist. Instead of aiding low-income borrowers, the FHA is increasingly serving home buyers whose incomes exceed those of average Americans, according to a report released Thursday by the George Washington University’s Center for Real Estate and Urban Analysis. 

“Nationally, more than 30% of the 2010 mortgages guaranteed by the FHA—an entity historically focused on first-time, low-income and minority borrowers—are made to families making more than 115% of area median income (AMI),” the report states. “Of the 30%, more than half went to those with incomes greater than 150% of AMI.”

Additionally, FHA loans are often financing homes that are above their neighborhood average in price. In 2011, more than half of FHA’s insurance was of loans with values greater than 125% of the area median house price—a figure that has risen from just 15% in 2007. 

“The FHA didn’t create the housing bubble and crash, and it has been a useful part of the recovery,” said Robert Van Order, one of the study’s authors. “However, partly in an effort to redeem its mounting and highly publicized delinquencies, it has expanded to a market—higher income borrowers—that it has not traditionally served. We recommend acknowledging FHA’s losses and the need for help from the Treasury, if that is necessary, and then moving on to what works best in the long run; returning to a smaller, more traditional FHA.”

The report cites the increase in loan limits as one of the main reasons for the shift, despite evidence that loans of greater amounts have a greater chance of delinquency. 

View the report

Written by Elizabeth Ecker

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