Low-Income Homeownership and the Role of State Subsidies: A Comparative Analysis of Mortgage Outcomes

Between the late 1970s through 2013, state Housing Finance Agencies (HFAs) financed nearly $300 billion in mortgages to low- and moderate-income first-time homebuyers. Descriptive evidence indicates that HFAs help households retain their homes at higher rates than similar households purchasing homes in the private mortgage market. Using a matched sample of HFA originations between 2005 and 2014, we estimate a multinomial logit model of mortgage default (or foreclosure) and prepayment. We find that HFA borrowers are about 30 percent less likely to default or foreclose on their mortgages than otherwise similar non-HFA borrowers. We find that 37 percent of this HFA effect can be explained by HFA origination and service delivery practices including direct servicing and homeownership counseling.