FHA Loan Performance and Adverse Selection in Mortgage Insurance

Posted: 17 Aug 2016

See all articles by Kevin A. Park

Kevin A. Park

Federal National Mortgage Association (Fannie Mae)

Date Written: August 15, 2016

Abstract

Using propensity score matching and survival analysis, we examine the performance of FHA- and privately-insured home purchase mortgages relative to uninsured mortgages. Privately-insured loans are more likely to default than uninsured loans with comparable risk characteristics, indicating the presence of adverse selection. By contrast, loans insured by FHA are not more likely to default than similar uninsured loans. Hazard ratios for both insurance types fall when an adjusted rate spread variable, but does not eliminate the disparity between uninsured and privately-insured loans. On the other hand, privately-insured loans are less likely to prepay while FHA-insured loans are more likely to prepay relative to uninsured loans.

Keywords: Mortgage; Default; Insurance; Federal Housing Administration; Adverse Selection

JEL Classification: R3, R38, R51, G22, G28

Suggested Citation

Park, Kevin Alan, FHA Loan Performance and Adverse Selection in Mortgage Insurance (August 15, 2016). Journal of Housing Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2823540

Kevin Alan Park (Contact Author)

Federal National Mortgage Association (Fannie Mae) ( email )

3900 Wisconsin Avenue, NW
Washington, DC 20016-2892
United States

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