Is DPA responsible for the foreclosure crisis in America?

Recent National Delinquency Studies (NDS) issued by the Mortgage Bankers Association demonstrate that FHA loans are not the source of the foreclosure crisis. By extension, DPA which was only associated with FHA loans, are therefore not a part of the problem either. Consider the following presented in the two most recent MBA NDS reports.

• 2nd Quarter NDS issued September 2008 - "The foreclosure starts rate differed greatly by loan type. For prime loans, foreclosure starts on fixed rate loans were 0.34 percent, an increase of five basis points." "FHA foreclosure starts decreased one basis point to 0.95 percent." In contrast, "Prime ARM foreclosure starts were 1.82 percent, a 26 basis point increase. For subprime loans, fixed rate foreclosure starts increased 27 basis points to 2.07 percent and subprime ARM foreclosure starts increased 31 basis points to 6.63 percent."
• 3rd Quarter NDS issued December 2008 - "For prime loans, foreclosure starts on fixed rate loans were 0.34 percent, unchanged from last quarter ...". "FHA foreclosure starts were unchanged at 0.95 percent ...". "... prime ARM foreclosure starts fell five basis points to 1.77 percent. For subprime loans, fixed rate foreclosure starts increased 16 basis points to 2.23 percent and subprime ARM foreclosure starts decreased 16 basis points to 6.47 percent."
• The above data illustrate two points -
  
  • First, if SF-DPA were contributing to high foreclosure rates, the NDS reports would not have reported a decline in foreclosure starts in the second quarter of 2008 or no-change in foreclosure starts in the third quarter, particularly given HUD's own claims that in recent years, 40% of FHA purchase money originations were accompanied by SF-downpayment assistance.
  • Secondly, this data clearly illustrates the source of the foreclosure crisis. It is not associated with FHA insured-mortgages or downpayment assistance. The mortgage crisis is clearly being driven by the excesses of subprime lending.

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For additional information, please contact Shelley Mitchell, smitchell@nehemiahcorp.org, 916-231-1999.

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