Reports Conclude: Downpayment Assistance Programs Have No Impact on Loan Performance
A report released by the Harvard Joint Center for Housing Studies has found that downpayment assistance programs had little impact on loan performance. The center's Working Paper, "A Cautionary Tale of How the Presence and Type of Downpayment Assistance Affects the Performance of Affordable Mortgage Loans," found, among other things, that the performance of home loans was not significantly impacted when downpayment assistance was used.
According to the study's authors, "Our multivariate analysis indicates that the receipt of DPA (downpayment assistance) is not significantly associated with default risk. In particular, while grant assistance from a government or community organization is marginally significant as a predictor of default risk in one of our model specifications, this effect disappears altogether when racial controls are incorporated in the model. Thus, the receipt of DPA appears to be unrelated to default risk."
Downpayment assistance can take many forms. In many situations, family members provide relatives with the necessary funds for a downpayment. But in the minority community, especially among African-American families, family members often lack the capital to help relatives with a home purchase.
"This is where government downpayment assistance programs help bridge the gap," said Richard Ferguson, president of CBC Mortgage Agency, a nationally chartered housing finance agency and a leading source of downpayment assistance.
A recent white paper published by CBC Mortgage Agency, found that more than 90 percent of downpayment assistance recipients would not have been able to purchase a home without downpayment assistance. More than half of buyers helped by CBC Mortgage Agency are racial or ethnic minorities.
"Downpayment assistance programs have come under attack lately, with some arguing that all down payment assistance is bad," said Ferguson. "This view is likely the result of pre-crisis downpayment assistance programs in which property sellers were allowed to pay the buyer's downpayment and raised the price of the property in order to cover the cost. Those seller-paid programs have been shut out of the market for years and are no longer an issue. Today's programs must be economically viable without the help of a home seller. In recent years, loan performance on transactions in which the borrower received downpayment assistance has been far better compared to loans under the former seller-paid programs."