New Report: FHA Loan Default Activity

Posted by on April 19, 2002

[Comm-Org]

From: “Tracy Van Slyke”

For more information, please call Tracy Van Slyke or Cathy Klump at 312-243-3035. To see a copy of the study, please go to http://www.ntic-us.org/home.htm
New study documents excessively high default rates on FHA government-backed loans in 22 cities.

Twenty-two major cities across the country are the focus of a new national study documenting excessively high FHA loan default rates, particularly concentrated in low income and minority neighborhoods.

Released by National People’s Action, “Families HUD Abandoned: An Analysis of the Federal Housing Administration’s Loan Default Activity and Lender Performance in 22 U.S. Cities, 1996 – 2000,” documents the top FHA lenders in each city and their city-wide default rates in minority and low income neighborhoods.

Despite their responsibility to FHA homeowners, the U.S. Department of Housing and Urban Development’s Federal Housing Administration (FHA) continues to do business with the top lenders behind these high default rates. These lenders then reap the rewards of full reimbursement from the FHA on their insurance claims once a family loses their home. Neighborhoods are then left with abandoned buildings and families without homes.

“These findings are startling! We need HUD to truly enforce its Credit Watch program and implement specific reforms, including programs that terminate the ability of high defaulting lenders, realtors and appraisers from making FHA loans. We have not seen a real commitment out of this administration. When is HUD going to step up to the plate?” said Inez Killingsworth, co-chairperson of National People’s Action (NPA).

The 22 U.S. cities include: Atlanta, GA; Baltimore, MD; Birmingham, GA; Buffalo, NY; Chicago, IL; Cincinnati, OH; Cleveland, OH; Columbus, OH; Dallas, TX; Detroit, MI; Indianapolis, IN; Los Angeles, CA; Memphis, TN; Miami, FL; Newark, NJ; New York City (Bronx, Brooklyn, and Queens), NY; Philadelphia, PA; Richmond, VA; Rochester, NY; Syracuse, NY; Trenton, NJ and Washington D.C.

Based on HUD’s own data from loans made between 1996-2000, the study finds:

-Default rates in 21 of the 22 cities studied were above the national average FHA default rate.
-Eight of the 22 cities had default rates at least twice the national average FHA default rate.
-19 of the 22 cities had higher FHA loan default rates in minority census tracts than in white census tracts.
-In 6 of the 22 cities studied, select lenders had individual default rates at least twice the city-wide default rate. Yet, the majority of these lenders continue to do business with the FHA.
-21 of the 22 cities had higher FHA home loss rates in low-income census tracts than in middle-income census tracts.
-16 of the 22 cities had higher FHA home loss rates in minority census tracts than in white census tracts.
-During fiscal year 2001, 63,322 FHA insurance claims were paid to lenders, amounting to over $5.6 billion.
-6.4% of all FHA loans made between 1996 and 2000 were in default as of April 2001.
-Over 45,000 FHA homes were abandoned and vacant at the beginning of 2000.

Ruthie Bobb of Eastside P.R.I.D.E in Buffalo also expressed her disappointment. Her views are echoed throughout the country. “FHA is obviously not fulfilling its responsibilities, but neither are the lenders. We know that high defaults lead to foreclosures and all the abandoned homes are killing our neighborhoods,” says Bobb.