HOME MORTGAGE 

GUARANTEES

Issues to Consider in 

Evaluating 

Opportunities to 

Consolidate Two 

Overlapping SingleFamily Programs

Report to the Chairman, Subcommittee 

on Housing and Insurance, Committee 

on Financial Services, House of 

Representatives

September 2016

GAO-16-801

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-16-801, a report to the 

Chairman, Subcommittee on Housing and 

Insurance, Committee on Financial Services, 

House of Representatives 

September 2016

HOME MORTGAGE GUARANTEES

Issues to Consider in Evaluating Opportunities 

to Consolidate Two Overlapping Single-Family 

Programs

What GAO Found

GAO’s comparison of single-family home purchase loans guaranteed by the 

Rural Housing Service (RHS) and the Federal Housing Administration (FHA) in 

fiscal years 2010–2014 identified significant overlap and some differences in the 

borrowers served. Within statutorily defined rural areas (RHS-eligible areas):

 Both agencies served large numbers of rural borrowers, but FHA served over 

35 percent more than RHS, while RHS reached a greater number of 

borrowers in the more rural parts of RHS-eligible areas.

 Most of the borrowers served by each agency had annual incomes below 

$60,000. But consistent with RHS’s statutory income limits, the median 

borrower income for RHS ($44,000) was well below that for FHA ($57,000).

 RHS and FHA borrowers had similar credit scores (around 685 at the 

median) and ratios of housing expenses to monthly gross income (23–24 

percent at the median).

 Borrowers in both programs had high loan-to-value (LTV) ratios (loan amount 

divided by home value). But RHS’s no-down-payment requirement and 

FHA’s statutorily required 3.5 percent down payment resulted in higher LTV 

ratios for RHS than for FHA (medians of 101 and 96.5 percent, respectively).

 Significant portions of RHS and FHA borrowers could have met the criteria of

the other program. For example, at least 36 percent of RHS borrowers could 

have met FHA’s criteria, including the 3.5 percent minimum down payment.

In RHS-eligible areas, RHS loans guaranteed in fiscal years 2010–2011 

performed worse than corresponding FHA loans after 3 years. Specifically, for 

borrowers whose incomes fell within RHS limits, RHS’s 3-year troubled loan rate 

(the share of loans 90 or more days late, in foreclosure, or terminated with a 

claim) was 7 percent, compared with 6 percent for FHA. GAO estimated that 

RHS’s loans would be expected to perform worse than FHA’s due partly to RHS

borrowers’ higher LTV ratios. 

Borrower costs—at loan closing and paid monthly—were lower for RHS loans 

than for FHA loans. Due to differences in down-payment requirements, a 

borrower purchasing a $125,000 home in 2014 would have paid $4,375 more in 

up-front costs with an FHA loan than with an RHS loan. Also, FHA (which must 

maintain a capital reserve) charged borrowers a higher annual guarantee fee 

than RHS, which has no capital requirement. Due largely to the difference in this 

fee (charged monthly), a borrower’s initial monthly payments would have been

about 7 percent lower with an RHS loan (assuming a 3.75 percent interest rate).

GAO’s analysis provides additional evidence of how the programs overlap in 

terms of income, location, and borrower qualifications. It also highlights issues 

for RHS and FHA to consider in evaluating opportunities to consolidate these

programs, as GAO recommended in 2012. Specifically, differences in the 

performance and borrower costs of RHS and FHA loans underscore important 

tradeoffs. Higher LTV ratios and lower guarantee fees help make mortgages 

more affordable. However, these features also may elevate financial risks to the 

federal government from increased loan defaults and less revenue to cover 

unanticipated costs. Agency consideration of these issues would aid 

congressional decision-making about potential program consolidation.

View GAO-16-801. For more information, 

contact Daniel Garcia-Diaz at (202) 512-8678 

or garciadiazd@gao.gov.

Why GAO Did This Study

RHS and FHA help borrowers finance 

homes by guaranteeing single-family 

mortgage loans made by private 

lenders, and both operate in rural 

areas. However, eligibility for RHS 

guarantees is restricted to RHS-eligible 

areas and to low- and moderateincome households. A prior GAO 

report (GAO-12-554) found overlap in 

the products offered, borrower income 

levels, and geographic areas served by 

the two guarantee programs and 

recommended that RHS and FHA 

evaluate and report on opportunities 

for consolidating similar housing 

programs. 

GAO was asked to expand on the 

analysis in its 2012 report. This report 

compares the characteristics, 

performance, and borrower costs of 

RHS- and FHA-guaranteed loans in 

RHS-eligible areas.

GAO analyzed RHS and FHA data for 

home purchase loans guaranteed in 

fiscal years 2010–2014 (which allowed 

for analysis of loan performance over 

multiple years). GAO also interviewed 

RHS and FHA officials, eight lenders 

(selected to capture variation in rural 

areas served, origination volume, and 

mix of RHS and FHA business), and 

industry associations.

What GAO Recommends

GAO makes no new recommendations 

in this report but maintains that RHS 

and FHA should evaluate and report 

on opportunities to consolidate their 

similar housing programs.
Page i GAO-16-801 RHS Mortgage Guarantees

Letter 1

Background 6

Both Programs Had Similar Loan Characteristics, but RHS 

Borrowers Had Lower Incomes and Higher Loan-to-Value 

Ratios Than FHA Borrowers 15

Significant Percentages of RHS and FHA Borrowers Could Have 

Met Key Criteria for the Other Program 29

RHS-Guaranteed Loans Were More Likely to Be Troubled after 3 

Years than FHA-Guaranteed Loans 41

Agency Comments and Our Evaluation 48

Appendix I Objectives, Scope, and Methodology 52

Appendix II Characteristics of Home Purchase Loans RHS and FHA 

Guaranteed in RHS-Eligible Areas in Fiscal Years 2010–2014 72

Appendix III Characteristics of Refinance Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2014 85

Appendix IV Characteristics of Home Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas in Fiscal Years 

2010–2014 88

Appendix V Performance of Home Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012 95

Appendix VI Description of Our Statistical Model Comparing the Performance of 

Home Purchase Loans Guaranteed by RHS and FHA 99

Contents
Page ii GAO-16-801 RHS Mortgage Guarantees

Appendix VII Results of Statistical Model Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in RHS-Eligible Areas in 

Fiscal Years 2010–2012 124

Appendix VIII GAO Contact and Staff Acknowledgments 138

Tables

Table 1: Borrower-Identified Race and Ethnicity, by Percentage 

and Number, for RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2014 25

Table 2: Estimated Number and Percentage of RHS and FHA 

Borrowers Who Could Have Met All Criteria for the Other 

Program by Rurality Using USDA’s Rural-Urban 

Commuting Area Classification System in Fiscal Years 

2010–2014 63

Table 3: Estimated Number and Percentage of RHS and FHA 

Borrowers in RHS-Eligible Areas Who Could Have Met All

Criteria for the Other Program by Loan Cohort, Fiscal 

Years 2010–2014 64

Table 4: Distribution of Borrower Credit Scores for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 72

Table 5: Distribution of Borrower Credit Scores for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 73

Table 6: Distribution of Payment-to-Income Ratios for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 73

Table 7: Distribution of Payment-to-Income Ratios for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 74

Table 8: Distribution of Debt-Service-to-Income Ratios for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 75

Table 9: Distribution of Debt-Service-to-Income Ratios for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 75
Page iii GAO-16-801 RHS Mortgage Guarantees

Table 10: Distribution of Borrower Annual Incomes for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 76

Table 11: Distribution of Borrower Annual Incomes for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 76

Table 12: Distribution of Borrower-Identified Race and Ethnicity for 

RHS-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas by Loan Cohort, Fiscal Years 2010–2014 77

Table 13: Distribution of Borrower-Identified Race and Ethnicity for 

FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas by Loan Cohort, Fiscal Years 2010–2014 78

Table 14: Distribution of First-Time Homebuyers for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 78

Table 15: Distribution of First-Time Homebuyers for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 79

Table 16: Distribution of Loan Amounts for RHS-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 79

Table 17: Distribution of Loan Amounts for FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 80

Table 18: Distribution of Loan-to-Value Ratios for RHSGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 80

Table 19: Distribution of Loan-to-Value Ratios for FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Loan Cohort, Fiscal Years 2010–2014 81

Table 20: Distribution of Degree of Rurality for RHS-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 81

Table 21: Distribution of Degree of Rurality for FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 82

Table 22: Distribution of Census Regions for RHS-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 82

Table 23: Distribution of Census Regions for FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 83
Page iv GAO-16-801 RHS Mortgage Guarantees

Table 24: Distribution of Construction Types for RHS-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 83

Table 25: Distribution of Construction Types for FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 84

Table 26: Median Value of Credit Scores, Payment-to-Income 

Ratios, and Debt-Service-to-Income Ratios for RHS- and 

FHA-Guaranteed Home Refinance Loans in RHS-Eligible 

Areas by Refinance Program, Fiscal Years 2010–2014 86

Table 27: Median Value of Annual Borrower Incomes and Loan-toValue Ratios for RHS- and FHA-Guaranteed Home 

Refinance Loans in RHS-Eligible Areas by Refinance 

Program, Fiscal Years 2010–2014 87

Table 28: Distribution of Borrower Credit Scores for FHAGuaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 88

Table 29: Distribution of Payment-to-Income Ratios for FHAGuaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 89

Table 30: Distribution of Debt-Service-to-Income Ratios for FHAGuaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 89

Table 31: Distribution of Borrower Annual Incomes for FHAGuaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 90

Table 32: Distribution of Borrower-Identified Race and Ethnicity for 

FHA-Guaranteed Home Purchase Loans for Properties 

Not Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 91

Table 33: Distribution of First-time Homebuyers for FHAGuaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 91

Table 34: Distribution of Loan Amounts for FHA-Guaranteed 

Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–

2014 92
Page v GAO-16-801 RHS Mortgage Guarantees

Table 35: Distribution of Loan-to-Value Ratios for FHAGuaranteed Home Purchase Loans for Properties Not

Located in RHS-Eligible Areas by Loan Cohort, Fiscal 

Years 2010–2014 93

Table 36: Distribution of Degree of Rurality for FHA-Guaranteed 

Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–

2014 93

Table 37: Distribution of Census Regions for FHA-Guaranteed 

Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–

2014 94

Table 38: Distribution of Construction Types for FHA-Guaranteed 

Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–

2014 94

Table 39: Performance Status after 2 Years of RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2012 96

Table 40: Performance Status after 3 Years of RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2011 96

Table 41: Performance Status after 2 Years of RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Degree of Rurality, Fiscal Years 2010–2012 97

Table 42: Performance Status after 3 Years of RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas 

by Degree of Rurality Fiscal Years 2010–2011 98

Table 43: Number and Percentage of Home Purchase Loans RHS 

and FHA Guaranteed in Fiscal Years 2010–2011 and 

RHS Program Eligibility as Measured by Census Tract 

Land Area 102

Table 44: Distribution of Values of Explanatory Variables for RHSand FHA-Guaranteed Home Purchase Loans in RHSEligible Areas, Fiscal Years 2010–2011 106

Table 45: Mean Values under Various Model Specifications for 

RHS- and FHA-Guaranteed Home Purchase Loans in 

RHS-Eligible Areas, Fiscal Years 2010–2011 125

Table 46: Performance Simulation Results after 3 Years under 

Various Model Specifications for RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible 
Page vi GAO-16-801 RHS Mortgage Guarantees

Areas, Fiscal Years 2010–2011, Using a Four-Category 

Loan-to-Value Ratio Variable 128

Table 47: Performance Simulation Results after 3 years for RHSand FHA-Guaranteed Home Purchase Loans in RHSEligible Areas, Fiscal Years 2010–2011, Using a ThreeCategory Loan-to-Value Ratio Variable 132

Table 48: Mean Values for RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2012 133

Table 49: Performance Simulation Results after 2 Years for RHSand FHA-Guaranteed Home Purchase Loans in RHSEligible Areas, Fiscal Years 2010–2012 136

Figures

Figure 1: Key Eligibility Requirements and Qualifying Benchmarks 

for RHS- and FHA-Guaranteed Purchase Loans, Fiscal 

Years 2010–2014 8

Figure 2: Rural and Urban Areas in the United States Based on 

the Statutory Definition and Rural-Urban Commuting 

Areas Definition, Fiscal Year 2015 12

Figure 3: Geographic Distribution of RHS- and FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas, Fiscal 

Years 2010–2014 17

Figure 4: Distribution of Credit Scores for RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2014 19

Figure 5: Distribution of Payment-to-Income Ratios for RHS- and 

FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2014 21

Figure 6: Distribution of Debt-Service-to-Income Ratios for RHSand FHA-Guaranteed Home Purchase Loans in RHSEligible Areas, Fiscal Years 2010-2014 22

Figure 7: Distribution of Annual Borrower Incomes for RHS- and 

FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2014 24

Figure 8: Distribution of Origination Loan Amounts for RHS- and 

FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2014 27

Figure 9: Distribution of Loan-to-Value Ratios for RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2014 28
Page vii GAO-16-801 RHS Mortgage Guarantees

Figure 10: Estimated Number and Percentage of RHS Borrowers 

Who Could Have Met Key Criteria for FHA-Guaranteed 

Home Purchase Loans in Fiscal Years 2010–2014 30

Figure 11: Estimated Number and Percentage of RHS Borrowers 

Who Could Have Met Individual Criteria for FHAGuaranteed Home Purchase Loans in Fiscal Years 

2010–2014 32

Figure 12: Estimated Number and Percentage of FHA Borrowers 

in RHS-Eligible Areas Who Could Have Met Key RHS 

Criteria for RHS-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2014 34

Figure 13: Estimated Percentage of FHA Borrowers in RHSEligible Areas Who Could Have Met Individual Criteria for 

RHS-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2014 35

Figure 14: Illustrative Up-front and Monthly Costs for Purchasing a 

$125,000 Home in Fiscal Year 2014 Using a 30-Year 

Fixed-Rate Mortgage Guaranteed by RHS or by FHA 40

Figure 15: Status of RHS- and FHA-Guaranteed Home Purchase 

Loans in RHS-Eligible Areas, Fiscal Years 2010 and 

2011, after 3 Years of Performance 43

Figure 16: Estimated Influence of Portfolio Characteristics on 

Differences in 3-Year Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHS-Eligible Areas 

in Fiscal Years 2010 and 2011 47

Figure 17: Key Eligibility Requirements and Qualifying 

Benchmarks for RHS- and FHA-Guaranteed Home 

Purchase Loans, Fiscal Years 2010–2014 58

Figure 18: Relationship between the Number of Seasoned RHSand FHA-Guaranteed Home Purchase Loans and 

Troubled Loan Rates 104

Figure 19: Relationship between Borrower Credit Score and 

Troubled Loan Performance after 3 Years for RHS- and 

FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011 109

Figure 20: Relationship between Borrower Income and Troubled 

Loan Performance after 3 Years for RHS- and FHAGuaranteed Home Purchase Loans in Fiscal Years 

2010–2011 110

Figure 21: Relationship between Loan Amount and Troubled Loan 

Performance after 3 Years for RHS- and FHA-
Page viii GAO-16-801 RHS Mortgage Guarantees

Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011 111

Figure 22: Relationship between Debt-Service-to-Income Ratio 

and Troubled Loan Performance after 3 Years for RHSand FHA-Guaranteed Home Purchase Loans in Fiscal 

Years 2010–2011 112

Figure 23: Relationship between Mortgage Rate Spread and 

Troubled Loan Performance after 3 Years for RHS- and 

FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011 113

Figure 24: Relationship between Loan-to-Value Ratio and 

Troubled Loan Performance after 3 Years for RHS- and 

FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011 114

Figure 25: Relationship between House Price Appreciation and 

Troubled Loan Performance after 3 Years for RHS- and 

FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011 115

Figure 26: Estimated Influence of Portfolio Characteristics on 3-

Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2011 117

Figure 27: Estimated Influence of Portfolio Characteristics on 3-

Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2011, Using a Model Specification with No Income 

Restriction 119

Figure 28: Estimated Influence of Portfolio Characteristics on 3-

Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years

2010–2011, Using a Model Specification with Three 

Loan-to-Value Ratio Categories 120

Figure 29: Estimated Influence of Portfolio Characteristics on 3-

Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in More Rural Parts of RHS-Eligible 

Areas, Fiscal Years 2010–2011 121

Figure 30: Estimated Influence of Portfolio Characteristics on 2-

Year Performance of RHS- and FHA Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2012 123
Page ix GAO-16-801 RHS Mortgage Guarantees

Abbreviations 

DTI debt-service-to-income 

FHA Federal Housing Administration 

HUD Department of Housing and Urban Development 

LTV loan-to-value 

PTI payment-to-income 

RHS Rural Housing Service 

TOTAL Technology Open to Approved Lenders 

USDA Department of Agriculture

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Page 1 GAO-16-801 RHS Mortgage Guarantees

441 G St. N.W.

Washington, DC 20548

September 29, 2016

The Honorable Blaine Luetkemeyer

Chairman

Subcommittee on Housing and Insurance

Committee on Financial Services

House of Representatives

Dear Mr. Chairman:

The Department of Agriculture’s (USDA) Rural Housing Service (RHS) 

has helped more than 1 million low- and moderate-income families in 

rural communities finance homes through its Single Family Mortgage 

Guarantee Program.1 The program protects private lenders against 

losses on loans that finance the purchase of properties in areas statutorily 

designated as rural (RHS-eligible areas) or that refinance existing RHS 

mortgages. At the end of fiscal year 2015, RHS had a portfolio of more 

than $112 billion in outstanding guarantees.2 The Department of Housing 

and Urban Development’s (HUD) Federal Housing Administration (FHA) 

also protects lenders against losses on single-family mortgage loans (by 

providing mortgage insurance) and has a much larger program.3 At the 

end of 2015, FHA had a portfolio of more than $1 trillion in outstanding 

guarantees. FHA’s program has no geographic or borrower income 

restrictions; therefore, it too guarantees loans in rural areas.

Although the programs have some salient differences, in an August 2012 

report, we found overlap in the products offered, borrowers’ income 

 1

The program was authorized by Section 706(b) of the Cranston-Gonzalez National 

Affordable Housing Act, Pub. L. No. 101-625, 104 Stat. 4079, 4284 (1990), which added 

subsection 502(h) to the Housing Act of 1949, Pub. L. No. 81-871, 63 Stat. 413 (codified, 

as amended, at 42 U.S.C. §1472(h)). A loan guarantee is a commitment by the federal 

government to pay part or all of a loan’s principal and interest to the lender if the borrower 

defaults.

2

Unless otherwise specified, years refer to federal fiscal years throughout this report.

3

The program was authorized by Section 203 of the National Housing Act, Pub. L. No. 73-

749, 48 Stat. 1246 (1934) (codified, as amended, at 12 U.S.C. § 1709). In contrast to 

RHS, FHA uses the term “mortgage insurance” instead of “loan guarantee.” Because 

“insurance” and “guarantee” have the same meaning in the context of our review, we use 

guarantee throughout the rest of this report.

Letter
Page 2 GAO-16-801 RHS Mortgage Guarantees

levels, and geographic areas reached by the RHS and FHA single-family 

mortgage guarantee programs.4 We concluded that there were 

opportunities for increased collaboration and consolidation in the 

programs. Although Congress ultimately would have to decide on actions 

requiring statutory change, we noted that agencies (including RHS and 

FHA) could further this effort by exploring the potential benefits and costs 

of consolidating overlapping programs. Such analyses represent a key 

step on the path to determining the viability of consolidation and helping 

inform Congress’s decision-making process. Thus, in 2012, we 

recommended that the agencies evaluate and report on the specific 

opportunities for consolidating similar housing programs, including those 

requiring statutory changes. The agencies (including RHS and FHA) 

generally agreed with our recommendation, but they have yet to report on 

such opportunities, and our recommendation remains unaddressed.

Additionally, relatively little is known about how the loan performance of 

the two programs compares. For example, one of RHS’s performance 

goals is to be within a specified range of FHA’s delinquency rates. RHS 

has generally met this goal and reported to Congress in April 2015 that 

during the prior 5 years (2010–2014) RHS-guaranteed loans generally 

performed slightly better than FHA-guaranteed loans.5 However, our 

March 2016 report found RHS’s analysis did not account for the age of 

the loans, property location, or other loan and borrower characteristics 

that can influence performance.6 We recommended that RHS improve its 

measures comparing RHS and FHA loan performance, potentially by 

making comparisons on a cohort basis and limiting comparisons to loans 

made in similar geographic areas.7 RHS has yet to make changes to its 

 4

GAO, Housing Assistance: Opportunities Exist to Increase Collaboration and Consider 

Consolidation, GAO-12-554 (Washington, D.C.: Aug. 16, 2012).

5

Department of Agriculture, Report to Congress: Rural Housing Service Single Family 

Housing Guaranteed Loan Program Update 4th Quarter 2014 (Washington, D.C.: Apr. 20, 

2015). 

6

GAO, Rural Housing Service: Actions Needed to Strengthen Management of the SingleFamily Mortgage Guarantee Program, GAO-16-193 (Washington, D.C.: Mar. 31, 2016).

7

RHS neither agreed nor disagreed with our recommendation, but said it recognized the 

underlying risk implications and was continuing to consider it. A cohort is the set of loans 

an agency guarantees in a fiscal year.
Page 3 GAO-16-801 RHS Mortgage Guarantees

performance measures and our 2016 recommendation remains 

unaddressed.

You asked us to expand on the analysis in our 2012 report and compare 

the characteristics and performance of rural single-family loans 

guaranteed by RHS and FHA.8 This report (1) compares the property, 

borrower, and loan characteristics of RHS- and FHA-guaranteed loans in 

RHS-eligible areas; (2) estimates the number of RHS and FHA borrowers 

in RHS-eligible areas who could have met key criteria for the other 

program and describes factors borrowers consider in choosing between 

the two programs; and (3) compares the performance of RHS- and FHAguaranteed loans in RHS-eligible areas.

To compare the property, borrower, and loan characteristics of RHS- and 

FHA-guaranteed loans, we analyzed loan-level data on mortgages for 

home purchases guaranteed by the agencies in RHS-eligible areas in 

2010–2014.9 In addition to focusing on home purchase loans in RHSeligible areas (the areas in which both agencies can operate), we took 

other steps to make the RHS and FHA data comparable, such as by 

limiting our analysis to 30-year, fixed-rate loans, and by excluding loans 

for units in condominium and cooperative developments.10 We compared 

the distributions and number of loans for key property characteristics 

(such as the state and census region); borrower characteristics (such as 

credit score and debt burden ratios); and loan characteristics (such as 

loan amount and down-payment percentage) at the time the mortgages

were originated. To further differentiate the geographic comparisons of 

the loans, we used Rural-Urban Commuting Area codes (developed by 

USDA’s Economic Research Service and the U.S. Health Resources and 

Services Administration) to assess the “rurality” of a property location (as 

measured by factors such as commuting patterns and population 

density).

 8

GAO-12-554.

9

We limited the set of FHA-guaranteed loans to those for properties in census tracts 

where 66.7 percent or more of the tract was within an RHS-eligible area. The 2010–2014 

time frame allowed for analysis of loan performance over multiple years.

10RHS does not guarantee mortgages with shorter terms or adjustable interest rates. 

Additionally, under its 203(b) program, FHA does not guarantee loans for cooperatives 

and guaranteed few loans for condominiums in 2010–2014. 
Page 4 GAO-16-801 RHS Mortgage Guarantees

To assess the extent to which borrowers could have met key criteria for 

both RHS- and FHA-guaranteed home purchase mortgages and the 

factors borrowers consider in choosing between the two programs, we 

reviewed RHS and FHA documentation on their underwriting 

requirements and qualifying benchmarks to understand similarities and 

differences in program eligibility and qualification criteria. We analyzed 

RHS and FHA data for loans guaranteed in 2010–2014 and applied 

general agency requirements and benchmarks to estimate the number 

and percentage of RHS and FHA borrowers who could have met key 

criteria for each program. Our estimates represent the minimum number 

of borrowers who could have met key criteria for the other program. We 

also analyzed the costs for RHS- and FHA-guaranteed loans and 

calculated illustrative up-front and monthly borrower costs for each 

program under various home price and interest rate scenarios. To confirm 

key observations from this analysis, we interviewed a nonprobability 

sample of eight mortgage lenders selected to capture variation in the 

geographic areas served, volume of guaranteed loans originated, and mix 

of RHS and FHA business. To gain additional perspective on mortgage 

lending in rural areas, we interviewed mortgage industry groups selected 

to cover a range of stakeholders in the RHS and FHA guarantee 

programs. These included the Independent Community Bankers of 

America, National Association of Mortgage Brokers, National Association 

of Realtors, and Mortgage Bankers Association.

To compare the performance of RHS- and FHA-guaranteed loans for 

home purchases in RHS-eligible areas, we analyzed RHS and FHA loanlevel data and determined the performance status (current, delinquent, in 

the foreclosure process, prepaid, or terminated with a claim) of loans 

guaranteed in 2010–2012 at 12-month intervals (anniversary months) 

starting from the month the first payment was due until September 30, 

2014.11 For this comparison, we limited the FHA-guaranteed loans to 

those obtained by borrowers with incomes within the county-level 

household income limits set by RHS (which we determined using 

 11We limited the set of FHA-guaranteed loans to those for properties in census tracts 

where 95 percent or more of the tract was within an RHS-eligible area. 
Page 5 GAO-16-801 RHS Mortgage Guarantees

borrower income).12 We restricted the data in this way to account for 

RHS’s household income limits and FHA’s lack of such limits, which 

resulted in some FHA borrowers with higher incomes than RHS is 

allowed to serve. We classified loans as troubled if they were 90 or more 

days delinquent during the anniversary month, were in the foreclosure 

process, or had terminated with a claim. We compared the performance 

of RHS- and FHA-guaranteed loans after 2 and 3 years of performance 

through the end of September 2014. In addition, we developed a 

statistical model to examine the extent to which differences between RHS 

and FHA troubled loan rates (the number of troubled loans divided by the 

number of loans guaranteed) after 2 and 3 years stemmed from the 

characteristics of their guaranteed portfolios (for example, loan and 

borrower characteristics).13

To assess the reliability of the RHS and FHA data, we tested the data for 

missing values, outliers, and obvious errors and reviewed documentation 

on the process that RHS and FHA used to collect and ensure the 

reliability and integrity of their data. We also interviewed knowledgeable 

RHS and FHA officials to discuss interpretations of various data fields. 

We concluded that the data we used were sufficiently reliable for 

purposes of comparing the characteristics and performance of RHS- and 

FHA-guaranteed loans and for estimating the percentage of borrowers 

who could have met key criteria for both programs.

We conducted this performance audit from February 2015 to September 

2016 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

 12The loan-level data we analyzed on FHA borrowers included information on borrower 

income but not on household income or size. For this comparison, we assumed that the 

borrower’s income was the only source of household income and that all households 

consisted of no more than four people (the more restrictive limit). 

13For this analysis, we also used external data, including a Federal Housing Finance 

Agency house price index for nonmetropolitan areas and data on the Treasury 10-year 

constant maturity rate, to help assess economic conditions that are associated with 

changes in loan performance.
Page 6 GAO-16-801 RHS Mortgage Guarantees

and conclusions based on our audit objectives. Appendix I contains 

additional information on our objectives, scope, and methodology.

RHS and FHA operate major federal programs that guarantee mortgage 

loans.14 The guaranteed loans generally feature attractive interest rates 

(comparable to those of prime loans), but serve borrowers who may have 

difficulty qualifying for conventional mortgage credit (that is, mortgage 

loans without government guarantees). The programs protect the private 

lender or other mortgage holder, because the federal government 

commits to pay part or all of a loan’s outstanding principal and interest if 

the borrower defaults.15 In exchange, borrowers are required to pay upfront and annual guarantee fees.16 Both the RHS and FHA single-family 

programs guarantee 30-year, fixed-rate mortgages for borrower-occupied 

homes. The mortgage proceeds can be used to buy, build, or refinance 

homes. The mortgage loans require little or no down payment from 

borrowers and allow financing of up-front guarantee fees. These terms 

generally result in high loan-to-value (LTV) ratios (the amount of the loan 

divided by the value of the home at origination), including LTV ratios 

greater than 100 percent.

As shown in figure 1, both the RHS and FHA loan guarantee programs 

have requirements and benchmarks that lenders use to assess borrower 

eligibility and qualifications. For example, to be eligible for an RHS loan, 

the property must be located in an RHS-eligible area and the borrower’s 

household income must not exceed 115 percent of the area median 

 14The Department of Veterans Affairs also provides a federal guarantee for mortgage 

loans. The guarantee is available to veterans of a branch of the armed services who 

received a discharge other than dishonorable, certain members of the Reserves or 

National Guard, and spouses of veterans under certain circumstances.

15RHS provides coverage for eligible losses of up to 90 percent of the original principal, 

including unpaid principal and interest; principal and interest on RHS-approved advances 

for protection and preservation of the property; and liquidation costs. FHA’s guarantee 

provides 100 percent coverage of eligible losses when borrowers default. This guarantee 

covers the unpaid principal balance, interest costs, and certain costs of foreclosure and 

conveyance.

16FHA refers to its guarantee fees as insurance premiums.

Background

Federal Mortgage 

Guarantee Programs
Page 7 GAO-16-801 RHS Mortgage Guarantees

income, based on household size (which effectively limits the loan 

amount). Although FHA does not have income or geographic limits, the 

amount of the loans it guarantees is limited by statute.17 Both programs 

also require lenders to assess the borrower’s willingness and ability to 

repay the loan. To make this assessment, lenders use information 

collected during the loan origination process—including a borrower’s 

credit score, a numeric value ranging from 300 to 850 (calculated based 

on credit reports from the national credit bureaus) that indicates a 

borrower’s ability to repay future obligations; payment-to-income (PTI) 

ratio, the percentage of a borrower’s income that goes toward total 

mortgage debt payments; and the debt-service-to-income (DTI) ratio, the 

percentage of a borrower’s income that goes toward all recurring debt 

payments. RHS and FHA established specific benchmarks lenders use to 

evaluate the borrower’s qualifications. RHS and FHA also allow lenders to 

consider loans for approval that differ from these benchmarks by 

considering compensating factors (such as proof of continuous 

employment or cash reserves) that demonstrate the borrower’s ability to 

repay the loan.

 17FHA’s mortgage limits are calculated at the county and metropolitan-area levels (taking 

into account the number of living units in the property) and are calculated as a percentage 

of the standard national limit for Freddie Mac loans. Beginning in January 2014, the 

national loan limit ceiling for FHA-guaranteed loans for one-unit properties was between 

$271,050 in low-cost areas and $625,500 in high-cost areas (with the exception of Alaska, 

Hawaii, Guam, and the Virgin Islands where the loan limit was $938,250). In 2008–2013, 

the high-cost area limit was increased to $729,750. 
Page 8 GAO-16-801 RHS Mortgage Guarantees

Figure 1: Key Eligibility Requirements and Qualifying Benchmarks for RHS- and 

FHA-Guaranteed Purchase Loans, Fiscal Years 2010–2014

a

The size of the loans RHS guarantees is effectively limited by RHS’s borrower household income 

requirements and the payment-to-income ratio.

b

The maximum loan limit for single-unit properties in high-cost exception areas was $1,094,625 from 

2010 through December 2013 and $938,250 starting January 2014.

c

According to RHS and FHA guidelines, borrowers can qualify for a guaranteed mortgage without 

meeting every benchmark if certain compensating factors are present, such as proof of continuous 

employment or cash reserves.

d

Qualified borrowers with credit scores as low as 581 can obtain an RHS-guaranteed loan if the loan 

is manually underwritten and the lender provides additional documentation of borrower 

creditworthiness.

e

Benchmark for FHA’s maximum financing option. Qualified borrowers with credit scores of 500 to 

579 can obtain FHA-guaranteed loans if they make a down payment of 10 percent.
Page 9 GAO-16-801 RHS Mortgage Guarantees

Both RHS and FHA lenders evaluate the overall creditworthiness of a 

loan guarantee applicant and determine the associated risk of default 

using a version of FHA’s automated mortgage score card.18 Lenders may 

also review loans manually to assess applicants’ eligibility and 

qualifications.19

In 1949 Congress authorized separate housing assistance for rural areas 

and gave USDA responsibility for administering it. Section 520 of the 

Housing Act of 1949, as amended, defines certain areas as “rural” for 

purposes of determining RHS program eligibility (in this report, we 

generally refer to these as RHS-eligible areas). RHS-eligible areas are 

largely identified based on population, but also consider other factors, 

such as proximity to metropolitan areas and access to mortgage credit. 

USDA is to re-evaluate eligibility determinations upon issuance of a 

decennial U.S. Census of Population and Housing. The eligible areas 

were most recently updated in 2014 and 2015 to take into account data 

 18FHA requires lenders to use its Technology Open to Approved Lenders (TOTAL) score 

card in conjunction with an automated underwriting system. In 2005, RHS adopted FHA’s 

TOTAL score card and calibrated the tool using RHS’s thresholds for determining 

borrower qualifications and default risk. TOTAL is a component of RHS’s Guaranteed 

Underwriting System, which RHS encourages lenders to use as a complement to the 

lenders’ own underwriting.

19Applicants for FHA-guaranteed loans who are not accepted by the automated mortgage 

score card are required to be assessed manually to determine if the applicant should be 

accepted or rejected.

Rural Areas
Page 10 GAO-16-801 RHS Mortgage Guarantees

from the 2010 Census.20 In contrast, FHA’s single-family loan guarantee 

program is not restricted to any geographic location.

As noted previously, rurality can be assessed under classification 

schemes other than statutory definitions. USDA’s Rural-Urban 

Commuting Area codes classify all census tracts in the United States on a 

continuum from rural to urban based on daily commuting patterns, 

urbanization, and population density. The codes can be consolidated into 

four types of locations.21

• Urban. Adjoining census tracts in built-up areas, with total population 

of 50,000 or more. These areas correspond to the U.S. Census 

Bureau’s urbanized areas.

• Suburban. Areas with high commuting flow to urban areas and all 

areas where 30-49 percent of the population commute to urban areas 

for work.

• Large rural town. Towns with populations between 10,000 and 

49,000 and surrounding rural areas where 10 percent or more of the 

 20The Agricultural Act of 2014, Pub. L. No. 113-79, § 6208, 128 Stat. 861, revised the rural 

area definition for housing programs. Rural areas are defined as any open country or any 

place, town, village, or city that is not part of or associated with an urban area and that (1) 

has a population not in excess of 2,500 inhabitants; (2) has a population in excess of 

2,500 but not in excess of 10,000 if it is rural in character; or (3) has a population in 

excess of 10,000 but not in excess of 20,000, and (A) is not contained within a standard 

metropolitan statistical area, and (B) has a serious lack of mortgage credit for lower- and 

moderate-income families, as determined by the Secretaries of USDA and HUD. Any area 

classified as “rural” or a “rural area” prior to October 1, 1990, and determined not to be 

“rural” or a “rural area” as a result of data received from or after the 1990, 2000, or 2010 

decennial Census, and any area deemed to be a “rural area” for purposes of title V of the 

Housing Act of 1949, as amended, under any provision law at any time during the period 

beginning January 1, 2000, and ending December 21, 2010, shall continue to be so 

classified until receipt of the data from the 2020 decennial Census, if such area has a 

population in excess of 10,000 but not in excess of 35,000, is rural in character, and has a 

serious lack of mortgage credit for lower- and moderate-income families.

21The USDA classification contains 10 primary and 21 secondary codes for classifying 

census tracts. According to USDA, the system is designed to allow for a combination of 

codes to meet varying definitional needs. The four-tier consolidated primary and 

secondary taxonomy is designed to support descriptive analysis of census tract data by 

providing information about the general character of an area. See Washington State, 

Department of Health, Guidelines for Using Rural-Urban Classification Systems for Public 

Health Assessment (Feb. 5, 2009).
Page 11 GAO-16-801 RHS Mortgage Guarantees

population commutes to the town and 10 percent or more of the 

population commutes to an urban area for work.

• Small town and isolated rural area. Towns with populations of less 

than 10,000 and their surrounding commuter areas and other isolated 

rural areas that are more than 1 hour driving distance to the nearest 

city.

RHS-eligible areas encompass rural areas (that is, large rural towns and 

small town and isolated rural areas) as well as areas that are more urban 

and suburban. As shown in figure 2, in 2015, RHS-eligible areas 

constituted 97 percent of the land area of the United States. Eligible areas 

also contained 37 percent of the nation’s population. Using the RuralUrban Commuting Area codes described earlier, rural areas constituted 

67 percent of the land area of the United States in 2015. These rural 

areas contained 12 percent of the population.
Page 12 GAO-16-801 RHS Mortgage Guarantees

Figure 2: Rural and Urban Areas in the United States Based on the Statutory Definition and Rural-Urban Commuting Areas 

Definition, Fiscal Year 2015
Page 13 GAO-16-801 RHS Mortgage Guarantees

Several categories are used to describe the payment status of 

mortgages:

• Current. The borrower is meeting scheduled payments.

• Delinquent. The borrower is behind by 30 or more days on scheduled 

payments.

• In the foreclosure process. The borrower generally has been 

delinquent for more than 90 days (commonly referred to as in default) 

and the lender has elected to initiate a legal process against the 

borrower that generally results in the borrower losing the property. 

The loan is considered active during the foreclosure process.

• Terminated with a claim. The borrower is delinquent, unable to pay 

off the loan balance, and loses title to the property. The government 

pays a claim (provides reimbursement) to a lender that incurs a loss 

on a guaranteed loan. The loan is no longer considered active.

• Prepaid. The borrower has paid off the entire loan balance before it is 

due. Prepayment often occurs as a result of the borrower selling the 

home or refinancing. A prepaid loan is no longer considered active.

As previously noted, in this report we refer to loans that were 90 days or 

more delinquent, in the foreclosure process, or that terminated with a 

claim as troubled loans.

As we and others have reported previously, certain loan features are 

often associated with an increase in mortgage defaults and 

foreclosures.22 For example, higher LTV ratios are associated with 

increased risk of default or foreclosure—especially for borrowers in a 

 22GAO, Mortgage Reform: Actions Needed to Help Assess Effects of New Regulations, 

GAO-15-185 (Washington, D.C.: June 25, 2015); Foreclosure Mitigation: Agencies Could 

Improve Effectiveness of Federal Efforts with Additional Data Collection and Analysis, 

GAO-12-296 (Washington, D.C.: June 28, 2012); Nonprime Mortgages: Analysis of Loan 

Performance, Factors Associated with Defaults, and Data Sources, GAO-10-805 

(Washington, D.C.: Aug. 24, 2010); Mortgage Financing: Additional Action Needed to 

Manage Risks of FHA-Insured Loans with Down Payment Assistance, GAO-06-24 

(Washington, D.C.: Nov. 9, 2005); and Mortgage Finance: Actions Needed to Help FHA 

Manage Risks from New Mortgage Loans, GAO-05-194 (Washington, D.C.: Feb. 11, 

2005). See also, Ken Lam, Robert M. Dunsky, and Austin Kelly, “Impacts of Down 

Payment Underwriting Standards on Loan Performance: Evidence from the GSEs and 

FHA Portfolios” (working paper 13-3), Federal Housing Finance Agency, (Washington, 

D.C.: December 2013). 

Loan Status
Page 14 GAO-16-801 RHS Mortgage Guarantees

negative equity position (when mortgage balances exceed the current 

value of homes). Borrowers then are limited in their ability to sell or 

refinance their homes in the event they cannot stay current on their 

mortgage payments. In addition, lower borrower credit scores at loan 

origination, higher PTI and DTI ratios, and first-time homebuyers are 

associated with an increased likelihood of mortgage default and 

foreclosure.

As noted previously, our prior work has assessed the extent to which 

there is overlap between RHS- and FHA-guaranteed loan programs.23 In 

particular, our 2012 report found overlap in the products offered, borrower 

income levels, and geographic areas served by the two programs. 

Overlap occurs when programs have similar goals, devise similar 

strategies and activities to achieve those goals, or target similar users. 

Our prior work has found that overlap can have positive and negative 

effects on program implementation, outcomes and impact, and costeffectiveness.24 Assessing the presence and extent of any overlap and its 

positive and negative effects can help congressional decision makers and 

executive branch leaders identify options to reduce or better manage 

overlap. Among other things, we have found that addressing overlap may 

require changes in statute, regulation, or guidance to revise or explicitly 

define agencies’ roles and responsibilities or program consolidation. In 

past reports, including in our 2012 report, we have suggested that 

agencies could increase their efficiency and effectiveness by 

consolidating their management functions, such as informationtechnology or administrative-support services.25 Consolidation is 

beneficial in some situations and not in others. As a result, a case-bycase analysis is needed to evaluate the goals of the consolidation against 

realistic expectations of how they can be achieved.

 23GAO-12-554.

24GAO, Fragmentation, Overlap, and Duplication: An Evaluation and Management Guide, 

GAO-15-49SP (Washington, D.C.: Apr. 14, 2015).

25GAO, Streamlining Government: Questions to Consider When Evaluating Proposals to 

Consolidate Physical Infrastructure and Management Functions, GAO-12-542 

(Washington, D.C.: May 23, 2012) and GAO-12-554. 

Overlap and Consolidation
Page 15 GAO-16-801 RHS Mortgage Guarantees

The mortgages RHS and FHA guaranteed in RHS-eligible areas in 2010–

2014 generally had similar property, borrower, and loan characteristics, 

underscoring the overlap between the two guarantee programs. But key 

differences existed in certain characteristics, primarily due to statutory 

program requirements. Both programs served more than 600,000 

borrowers in RHS-eligible areas, although RHS served more borrowers in 

more rural parts of these areas. In addition, the majority of borrowers in 

both programs had similar credit profiles, debt burdens, and other 

demographic characteristics. But consistent with income limits for the 

RHS program, RHS borrowers generally had lower annual incomes than 

FHA borrowers. Finally, both RHS and FHA generally guaranteed loans 

that were less than $150,000 and that had high LTV ratios. In keeping 

with RHS’s income restrictions, RHS’s loans were smaller than FHA’s, 

and RHS’s no-down-payment requirement resulted in higher LTV ratios 

for RHS than for FHA.

In 2010–2014, RHS and FHA both guaranteed large numbers of loans to 

borrowers in RHS-eligible areas, with FHA serving more borrowers 

overall and RHS serving a higher number and percentage of borrowers in 

more rural areas (see fig. 3).26 In this period, FHA guaranteed about 

880,000 loans in RHS-eligible areas, compared with about 614,000 loans 

for RHS, a 36 percent difference.27 The difference is partly attributable to 

the larger size of FHA’s program (loans in RHS-eligible areas represent 

25 percent of the loans FHA guaranteed in 2010–2014).28 But in terms of 

 26As previously discussed, we focused on loans for purchasing single-family homes in 

RHS-eligible areas, excluding loans for units in condominium and cooperative 

developments. Appendix II provides additional data on each of the property, borrower, and 

loan characteristics we analyzed. We also analyzed the characteristics of RHS- and FHAguaranteed loans for refinancing single-family homes in RHS-eligible areas, but less 

information was available for those loans. For more information on refinance loans, see 

appendix III. 

27As noted earlier, the statutory definition of RHS-eligible areas was updated in 2014 to 

take into account 2010 census data. As a result, approximately 5 percent of the loans 

RHS guaranteed in 2010–2014 were not located in the updated RHS-eligible areas. We 

used the updated definition for our analysis as well as for our analysis of USDA’s RuralUrban Commuting Area classifications because they both rely on the 2010 census data. 

We performed our analysis on the remaining 95 percent of RHS-guaranteed loans in 

RHS-eligible areas based on the updated definition. 

28See appendix IV for a description of FHA-guaranteed loans for properties not located in 

RHS-eligible areas.

Both Programs Had 

Similar Loan 

Characteristics, but 

RHS Borrowers Had 

Lower Incomes and 

Higher Loan-to-Value 

Ratios Than FHA 

Borrowers

Both RHS and FHA 

Served Large Numbers of 

Borrowers in RHS-Eligible 

Areas
Page 16 GAO-16-801 RHS Mortgage Guarantees

geographic distribution within RHS-eligible areas, RHS served more 

borrowers than FHA in more rural areas (areas classified as large rural 

towns or small town and isolated rural areas using USDA’s Rural-Urban 

Commuting Area classification). Specifically, in more rural areas, RHS 

guaranteed approximately 170,000 loans (28 percent of its total), while 

FHA guaranteed approximately 154,000 loans (18 percent of its total). 

Conversely, about 72 percent of the loans RHS guaranteed and 83 

percent of the loans FHA guaranteed in RHS-eligible areas in 2010–2014 

were in areas considered more urban or suburban (using USDA’s RuralUrban Commuting Area classifications).
Page 17 GAO-16-801 RHS Mortgage Guarantees

Figure 3: Geographic Distribution of RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 

2010–2014

Note: Using the Department of Agriculture’s Rural-Urban Commuting Area codes, “urban” is defined 

as adjoining areas with a population of 50,00 or more; “suburban” is defined as areas with high 

commuting flows to urban areas and all areas in which 30–49 percent of the population commutes to 

urban areas for work; “large rural towns” are defined as towns with populations between 10,000 and 

49,000 and surrounding rural areas where 10 percent or more of the population commutes to the 

town and 10 percent or more of the population commutes to an urban area for work; and “small town 

and isolated rural areas” are defined as towns with populations of less than 10,000 and their 
Page 18 GAO-16-801 RHS Mortgage Guarantees

surrounding commuter areas and other isolated rural areas that are more than 1 hour driving distance 

to the nearest city. Properties located in the U.S. island areas (other than Puerto Rico) and those with 

insufficient address information to be categorized according to USDA’s Rural-Urban Commuting 

Areas were labeled as “no data available.” Percentages are rounded. 

For loans guaranteed during 2010–2014 in RHS-eligible areas, RHS and 

FHA borrower characteristics, such as credit score and debt burden, were 

generally similar. While RHS borrowers had lower incomes, the 

proportion of borrowers who were racial or ethnic minorities was 

comparable.

The distribution of borrower credit scores and PTI ratios for loans RHS 

and FHA guaranteed in RHS-eligible areas was similar overall, although 

RHS borrowers generally had lower DTI ratios. We and others have 

previously found that lower credit scores and higher PTI and DTI ratios 

were associated with poorer loan performance.29

Credit score. In RHS-eligible areas, RHS and FHA borrower credit 

scores at loan origination were generally similar—median scores were 

686 for RHS and 683 for FHA. As shown in figure 4, about one-half of 

RHS and FHA borrowers had credit scores in the 640–699 range.30 Credit 

scores also were similar in the higher ranges—41 percent of RHS 

borrowers and 39 percent of FHA borrowers had scores greater than 700. 

However, RHS had a smaller proportion of borrowers with scores of less 

than 640 (9 percent) than FHA did (14 percent).31 Although FHA’s 

benchmark for minimum credit score (580 for maximum financing) is 

lower than RHS’s (640), lenders with whom we spoke noted that many 

 29See GAO-15-185, GAO-05-194, and Ken Lam, Robert M. Dunsky, and Austin Kelly, 

“Impacts of Down Payment Underwriting Standards on Loan Performance: Evidence from 

the GSEs and FHA Portfolios.”

30During 2010–2014, the proportion of RHS and FHA borrowers with scores in the 640–

699 range increased each year. For RHS, the proportion increased from 41 percent in 

2010 to 55 percent in 2014, and for FHA the corresponding increase was from 39 percent 

to 57 percent. See appendix II for analysis of property, borrower, and loan characteristics 

by annual loan cohort.

31As noted in figure 1, RHS and FHA policies allow lenders to approve borrowers with 

credit scores below the agencies’ benchmarks.

Credit and Other 

Characteristics of RHS

and FHA Borrowers Were 

Similar, but RHS Served 

More Borrowers with 

Lower Incomes Than FHA

Credit Characteristics
Page 19 GAO-16-801 RHS Mortgage Guarantees

FHA lenders and mortgage investors impose minimum credit score 

requirements that are higher than the FHA benchmark—typically, 640 or 

greater—to guard against the increased risk of default associated with 

lower scores. In addition, FHA policy allows lenders to require borrowers 

to have a higher credit score (in excess of FHA’s benchmark) when the 

borrower does not meet the benchmark for another characteristic, such 

as the PTI or DTI ratio. As a result, several lenders said they expected 

RHS and FHA borrowers to have similar scores.

Figure 4: Distribution of Credit Scores for RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

Note: RHS and FHA policies allow lenders to approve borrowers with credit scores below the 

agencies’ benchmarks. Qualified RHS borrowers with credit scores as low as 581 can obtain an RHSguaranteed loan if the loan is manually underwritten and the lender provides additional 

documentation of creditworthiness. Qualified FHA borrowers with credit scores of 500 to 579 can 

obtain an FHA-guaranteed loan if they make a down payment of 10 percent.
Page 20 GAO-16-801 RHS Mortgage Guarantees

Payment-to-income ratio. In RHS-eligible areas, RHS and FHA 

borrowers generally had similar PTI ratios (see fig. 5). Median ratios for 

both programs were similar—23 percent for RHS and 24 percent for FHA. 

RHS’s benchmark for PTI ratio is 29 percent and FHA’s is 31 percent.32

Roughly three-quarters of the borrowers in both programs had PTI ratios 

of 29 percent or less (78 percent for RHS and 71 percent for FHA), and 

about 10 percent of the borrowers in each program had PTI ratios of 

greater than 31 to 35 percent (a less favorable category). Finally, a larger 

share of FHA borrowers—about 13 percent—had PTI ratios greater than 

35 percent, compared with 5 percent of RHS borrowers.

 32As noted earlier, both RHS and FHA allow lenders to approve loans with higher ratios 

when compensating factors are present.
Page 21 GAO-16-801 RHS Mortgage Guarantees

Figure 5: Distribution of Payment-to-Income Ratios for RHS- and FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

Debt-service-to-income ratio. In RHS-eligible areas, RHS borrowers 

generally had lower (more favorable) DTI ratios than FHA borrowers (see 

fig. 6). The median DTI ratio for RHS borrowers was 37 percent, which 

was somewhat lower than the median for FHA borrowers (41 percent). 

RHS’s benchmark for DTI is 41 and FHA’s is 43. Seventy-one percent of 

RHS borrowers and 51 percent of FHA borrowers had DTI ratios of 41 

percent or less. Although both agencies allow lenders to approve 

borrowers with DTI ratios that exceed their benchmarks when 

compensating factors are present, several lenders with whom we spoke 

said that FHA provided greater flexibility than RHS in this regard. 

Consistent with this view, the share of FHA borrowers with DTI ratios 

greater than 43 percent was double the corresponding share of RHS 

borrowers (40 percent and 20 percent, respectively).
Page 22 GAO-16-801 RHS Mortgage Guarantees

Figure 6: Distribution of Debt-Service-to-Income Ratios for RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010-2014

In RHS-eligible areas in 2010–2014, most of the borrowers served by 

each agency had annual incomes of less than $60,000, but RHS 

borrower incomes were generally lower than those of FHA borrowers. 

The median income of RHS borrowers was about $44,000, compared 

with about $57,000 for FHA borrowers—a 28 percent difference.33

Approximately 42 percent of the loans guaranteed by RHS went to 

 33For perspective, the U.S. Census Bureau estimated that the median income for owneroccupied housing units with a mortgage in 2014 was $81,263 plus or minus $102. See 

U.S. Census Bureau, Financial Characteristics for Housing Units with a Mortgage 2014 1-

Year Estimates (report S2506), accessed on June 14, 2016, from 

http://factfinder.census.gov.

Demographic Characteristics
Page 23 GAO-16-801 RHS Mortgage Guarantees

borrowers with annual incomes of less than $40,000 (roughly the median 

income of all rural households), compared with 26 percent of FHAguaranteed loans (see fig. 7).34 RHS also served 13 percent more 

borrowers in this income category than FHA (about 256,000 RHS 

borrowers compared with about 226,000 FHA borrowers). In contrast, 

about 27 percent of FHA borrowers had annual incomes of $80,000 or 

more, compared with 3 percent of RHS borrowers. These differences are 

consistent with the RHS program’s statutory income limits (the program is 

designed to serve low- and moderate-income borrowers).35

 34USDA’s Economic Research Service estimated that in 2012, the median household 

income for rural households was approximately $41,000. See U.S Department of 

Agriculture, Economic Research Service, Rural Poverty and Well Being: Income

(Washington, D.C.: May 18, 2015).

35As noted previously, to be eligible for the RHS loan guarantee program, household 

income, which includes the borrower’s income, cannot exceed 115 percent of the area’s 

median income. Income limits vary across the country, depending on the property’s 

location. FHA does not have a similar income requirement. 
Page 24 GAO-16-801 RHS Mortgage Guarantees

Figure 7: Distribution of Annual Borrower Incomes for RHS- and FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

As shown in table 1, in RHS-eligible areas more than three-quarters of 

both RHS and FHA borrowers identified as white, although the proportion 

was larger for RHS (86 percent) than for FHA (77 percent).36 A smaller 

 36We used the race and ethnicity categories defined in the Home Mortgage Disclosure Act 

data and added an additional category, “more than one race,” to identify those nonHispanic or Latino borrowers who identified more than one racial category. For this 

analysis, we made the race and ethnicity categories mutually exclusive. For perspective, 

the Board of Governors of the Federal Reserve System reported that 69 percent of 

borrowers with purchase loans in 2014 identified as non-Hispanic white, 8 percent as 

Hispanic or Latino, 5 percent as black or African American, and 5 percent as Asian. An 

additional 12 percent of borrowers were another minority (American Indian or Alaska 

native, or Native Hawaiian or other Pacific Islander), reported two or more races, or did 

not disclose race or ethnicity data. See Neil Bhutta, Jack Popper, and Daniel R. Ringo, 

The 2014 Home Mortgage Disclosure Act Data, Federal Reserve Bulletin, vol. 101, no. 4

(Washington, D.C.: November 2015).
Page 25 GAO-16-801 RHS Mortgage Guarantees

proportion of RHS borrowers (8 percent) identified their ethnicity as 

Hispanic or Latino than did FHA borrowers (11 percent). With respect to 

racial minority groups, about 5 percent of the borrowers served by each 

program identified as black or African-American, and roughly 1 percent of 

each program’s borrowers identified as Asian.37

Table 1: Borrower-Identified Race and Ethnicity, by Percentage and Number, for RHS- and FHA-Guaranteed Home Purchase 

Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

Borrower race or ethnicity

Rural Housing Service (RHS)-guaranteed 

loans

Federal Housing Administration (FHA)-

guaranteed loans

Percentage of loans Number of loans Percentage of loans Number of loans

White 86.3 530,072 76.9 676,665 

Hispanic or Latino 7.8 47,610 11.2 98,744

Black or African American 4.5 27,614 4.7 40,973

Asian 0.6 3,443 1.1 10,016

American Indian, Alaska Native 0.4 2,378 0.3 2,825

More than one race (non-Hispanic or 

Latino) 0.3 1,627 0.2 2,159

Native Hawaiian or other Pacific 

Islander 0.2 1,403 0.4 3,960

Not disclosed 0.0 1 5.1 44,952

Total 100 614,148 100 880,294

Source: GAO analysis of RHS and FHA data. | GAO-16-801

Note: For this analysis, we made the categories mutually exclusive. Percentages do not sum to 

exactly 100 percent due to rounding.

Historically, federal mortgage guarantee programs have played a 

particularly large role among first-time homebuyers, due partly to their low 

or no down-payment requirements. In RHS-eligible areas, RHS and FHA 

borrowers both tended to be first-time homebuyers, with RHS having a 

 37Less than 1 percent of both RHS and FHA borrowers identified as American Indian or 

Alaska Native, Native Hawaiian or other Pacific Islander, or as of more than one race 

(non-Hispanic or Latino). In addition, approximately 5 percent of FHA borrowers in RHSeligible areas (44,952 loans) did not disclose race or ethnicity information (all but one RHS 

borrower identified a race or ethnicity). 
Page 26 GAO-16-801 RHS Mortgage Guarantees

higher proportion of first-time homebuyers (85 percent) than FHA (71 

percent).38

In RHS-eligible areas in 2010–2014, most RHS- and FHA-guaranteed 

loans were for less than $150,000, but RHS’s loans generally were 

smaller than FHA’s (see fig. 8).39 More specifically, the median loan 

amount for RHS ($124,000) was 17 percent less than the median for FHA 

($146,000). Approximately 69 percent of RHS-guaranteed loans were 

less than $150,000, compared with about 52 percent of FHA-guaranteed 

loans. RHS and FHA served almost the same number of borrowers with 

loans of less than $100,000 (about 200,000 loans each), and these 

smaller loans accounted for about 33 percent of RHS’s loans and about 

23 percent of FHA’s loans. In contrast, about 25 percent of FHA’s loans 

were above $200,000, compared with 10 percent for RHS. RHS’s smaller 

loan amounts (relative to FHA’s) are consistent with RHS borrowers’

generally lower incomes.

 38RHS and FHA generally define a first-time homebuyer as an individual who has not had 

ownership in a principal residence during the prior 3-year period. 

39For perspective, the median value of owner-occupied homes with a mortgage in 2010–

2014 was $193,500. See U.S. Census Bureau, Financial Characteristics for Housing Units 

With a Mortgage 2010-2014 American Community Survey 5-Year Estimates (report 

S2506), accessed on July 24, 2016 from http://factfinder.census.gov. 

Most RHS- and FHAGuaranteed Loans in 

RHS-Eligible Areas Were 

Less Than $150,000, but 

RHS’s Had Higher Loanto-Value Ratios
Page 27 GAO-16-801 RHS Mortgage Guarantees

Figure 8: Distribution of Origination Loan Amounts for RHS- and FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

At origination, both RHS- and FHA-guaranteed loans in RHS-eligible 

areas had high LTV ratios (above 90 percent)—a median ratio of 101 

percent for RHS and 96.5 percent for FHA.40 As shown in figure 9, 

approximately 57 percent of RHS-guaranteed loans had LTV ratios 

greater than 100 percent, indicating that borrowers were in a negative 

equity position (owed more on their loans than their homes were worth). 

 40In 1999, the Office of the Comptroller of the Currency, the Board of Governors of the 

Federal Reserve System, the Federal Deposit Insurance Corporation, and the Office of 

Thrift Supervision defined high LTV loans as those with LTV ratios of 90 percent or more. 

See the Office of the Comptroller of the Currency, the Board of Governors of the Federal 

Reserve System, the Federal Deposit Insurance Corporation, and the Office of Thrift 

Supervision, Interagency Guidance on High LTV Residential Real Estate Lending 

(Washington, D.C.: Oct. 8, 1999). 
Page 28 GAO-16-801 RHS Mortgage Guarantees

Among RHS borrowers with negative equity, 28 percent had LTV ratios 

from 102 percent to 104 percent (the top of the range for RHS). Although 

less than 1 percent of FHA-guaranteed loans had LTV ratios of more than 

100 percent, FHA loans also had high LTV ratios. Approximately 48 

percent of FHA loans had LTV ratios from 96.51 to 100 percent (with 44 

percent in the 96.51 to 98.5 percent range), and an additional 35 percent 

had ratios from 90.01 to 96.5 percent. As previously discussed, higher 

LTV ratios are generally associated with a higher likelihood of default.

Figure 9: Distribution of Loan-to-Value Ratios for RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2014

The difference between the LTV ratio distributions for RHS and FHA are 

consistent with differences in the down-payment requirements of the two 

programs. RHS does not require borrowers to make a down payment, 

which allows borrowers to borrow up to 100 percent of the principal 

amount (prior to financing any allowable fees). In contrast, FHA requires 

borrowers to make a minimum 3.5 percent down payment, which results 
Page 29 GAO-16-801 RHS Mortgage Guarantees

in an initial maximum LTV (prior to financing any allowable fees) of 96.5 

percent.

We estimated that at least 36 percent of RHS borrowers with loans 

guaranteed in 2010–2014 could have met key FHA criteria (credit score, 

debt burden measured by PTI and DTI ratios, and loan amount) and also 

had the ability to meet FHA’s down-payment requirement. Similarly, at 

least 22 percent of FHA borrowers in RHS-eligible areas could have met 

key RHS criteria (credit score, debt burden ratios, and household 

income). According to most lenders we spoke with, borrowers who meet 

the criteria for both RHS- and FHA-guaranteed loans primarily consider 

the up-front and monthly costs of the loans in deciding between the two 

loan products.

Based on our analysis of data on RHS-guaranteed loans, we estimated 

that at least 36 percent of RHS borrowers could have met key criteria to 

receive FHA-guaranteed loans and also potentially could have made a 

3.5 percent down payment (see fig. 10). We analyzed data on loans RHS 

guaranteed in 2010–2014 and estimated how many RHS borrowers could 

have met key criteria for the FHA program.41 That is, the borrowers would 

have had to meet FHA’s benchmarks for credit scores of 580 or above, 

PTI ratios of 31 percent or less, and DTI ratios of 43 percent or less, and 

had loan amounts within the limits for the FHA program.42 We applied 

FHA’s benchmarks and did not consider any compensating factors that 

might have allowed borrowers to qualify without meeting those 

benchmarks.43 We also estimated how many RHS borrowers could have 

also made FHA’s required down payment of at least 3.5 percent (based 

 41As previously discussed, we focused on loans for purchasing single-family homes in 

RHS-eligible areas and excluded loans for units in condominium and cooperative 

developments. 

42As previously noted, the limits on the size of FHA-guaranteed loans vary by locality.

43RHS’s and FHA’s policies allow lenders some flexibility in applying their benchmarks for 

credit score and PTI and DTI ratios when there are compensating factors such as proof of 

continuous employment or a larger down payment. For the purpose of this analysis, we 

used RHS and FHA benchmarks prior to considering compensating factors. As a result, 

our estimate represents the minimum number of RHS borrowers who could have met 

multiple FHA criteria.

Significant 

Percentages of RHS 

and FHA Borrowers 

Could Have Met Key 

Criteria for the Other 

Program

At Least 36 Percent of 

RHS Borrowers Potentially 

Could Have Met FHA’s 

Down-Payment and Other 

Key Criteria
Page 30 GAO-16-801 RHS Mortgage Guarantees

on borrowers’ liquid assets and LTV ratios).44 When only credit score, PTI 

and DTI ratios, and loan amount were considered, at least 70 percent of 

RHS borrowers could have met these four FHA criteria.

Figure 10: Estimated Number and Percentage of RHS Borrowers Who Could Have Met Key Criteria for FHA-Guaranteed Home 

Purchase Loans in Fiscal Years 2010–2014

 44To estimate if RHS borrowers could have made the FHA minimum down payment, we 

used RHS data on borrowers’ liquid assets (cash or other assets, such as stocks and 

proceeds from the sale of property, that are readily convertible to cash) and LTV ratios. 

For this analysis, we considered any LTV ratio below 100 percent to reflect money paid by 

the borrower towards a down payment. While it is possible in some cases that the LTV 

ratio was below 100 percent because the property’s appraised value exceeded the 

purchase price, RHS officials and lenders we spoke with said that the appraised value and 

the purchase price of a property are generally equivalent. In addition, for each loan, we 

used the property’s appraised value to calculate the amount the borrower would have 

been required to pay to make a 3.5 percent down payment. According to FHA policy, the 

required 3.5 percent down payment is calculated based on the lesser of the appraised 

value or the purchase price of the property. We determined the percentage of RHS 

borrowers with (a) sufficient liquid assets to pay the required down-payment amount, (b) 

LTV ratios corresponding to that amount, and (c) a combination of liquid assets and LTV 

ratios corresponding to that amount. See appendix I for additional information on our 

analysis.
Page 31 GAO-16-801 RHS Mortgage Guarantees

Note: The analysis focuses on 30-year, fixed-rate loans guaranteed by RHS (excluding loans for units 

in condominium and cooperative developments).

a

FHA has benchmarks for credit score and payment-to-income and debt-service-to-income ratios, but 

it also allows lenders some flexibility in applying these guidelines by considering compensating 

factors such as the amount of cash reserves. For this analysis, we applied FHA’s benchmarks without 

considering any compensating factors.

b

RHS has information on a borrowers’ liquid assets (cash or other assets, such as stocks and 

proceeds from the sale of property, that are readily convertible to cash) for about 80 percent of the 

borrowers whose loan guarantee applications were submitted electronically in 2010–2014. We 

considered borrowers’ liquid assets as a proxy for the ability to make a down payment. We also 

considered any loan-to-value ratio below 100 percent to reflect money paid by the borrower towards a 

down payment. While it is possible in some cases that the loan-to-value ratio was below 100 percent 

because the appraised value of the property exceeded the purchase price, RHS officials and lenders 

we spoke with said that the appraised value and the purchase price are generally equivalent.

Although at least an estimated 36 percent of the RHS borrowers had 

reported liquid assets sufficient to meet FHA’s down-payment and other 

criteria, the extent to which they would have used their liquid assets for a 

down payment is unknown. For example, according to a lender and an 

industry association with whom we spoke, RHS borrowers with liquid 

assets may choose not to make a down payment because they may want 

to use the funds to improve the home, cover other expenses, or maintain 

savings for future use.45 In addition, for RHS borrowers who could not 

have met the down-payment requirement, the extent to which they could 

have obtained funds from other sources to meet the requirement is 

unknown. Some RHS borrowers might have been able to obtain a thirdparty gift to make the down payment.46 In 2010–2014, approximately 26 

percent of FHA borrowers in RHS-eligible areas received a gift to help 

make their down payment.

We estimated that a majority of RHS borrowers also could have met 

individual FHA criteria (see fig. 11). Almost all RHS borrowers could have 

met FHA’s benchmarks for credit score and loan amount and about 80 

percent could have met the benchmarks for PTI and DTI ratios.47 When 

only the ability to make FHA’s minimum down payment was considered, 

 45As previously noted, we interviewed eight mortgage lenders and five industry 

associations.

46FHA allows borrowers to obtain third-party gifts from acceptable sources such as family 

members, employers, and governmental agencies to make the required 3.5 percent down 

payment.

47For this analysis, we considered each FHA benchmark individually and compensating 

factors were not relevant.
Page 32 GAO-16-801 RHS Mortgage Guarantees

we found that at least 51 percent of RHS borrowers could have met this 

FHA requirement.48

Figure 11: Estimated Number and Percentage of RHS Borrowers Who Could Have Met Individual Criteria for FHA-Guaranteed 

Home Purchase Loans in Fiscal Years 2010–2014

Note: The analysis focuses on 30-year, fixed-rate loans guaranteed by RHS (excluding loans for units 

in condominium and cooperative developments).

a

RHS has information on a borrower’s liquid assets (cash or other assets, such as stocks and 

proceeds from the sale of property, that are readily convertible to cash) for about 80 percent of the 

RHS borrowers whose loan guarantee applications were submitted electronically in 2010–2014. We 

considered borrowers’ liquid assets as a proxy for the ability to make a down payment. We also 

considered any loan-to-value ratio below 100 percent to reflect money paid by the borrower towards a 

down payment.

These results are not unexpected because many RHS borrowers already 

would have met RHS’s relatively stricter benchmarks for credit score and 

PTI and DTI ratios. And as previously discussed, loan amounts for RHSguaranteed loans were generally smaller than for FHA-guaranteed loans.

However, some RHS borrowers would not have met every FHA 

benchmark. As noted previously, borrowers can qualify for a guaranteed 

 48As before, we used the property’s appraised value to calculate the amount of FHA’s 3.5 

percent down payment, which was consistent with FHA’s policy and likely somewhat 

underestimated the number of RHS borrowers who could have met FHA’s down-payment 

requirement.
Page 33 GAO-16-801 RHS Mortgage Guarantees

mortgage without meeting every benchmark if certain compensating 

factors are present.

Based on our analysis of data on FHA-guaranteed loans, we estimated 

that at least 22 percent of FHA borrowers in RHS-eligible areas could 

have met key RHS criteria for credit score, PTI and DTI ratios, and 

household income (assuming it was equivalent to the borrower’s income) 

(see fig. 12).49 We analyzed data on loans FHA guaranteed in 2010–2014 

in RHS-eligible areas and estimated how many FHA borrowers could 

have met key criteria for the RHS program. That is, the borrowers would 

have had to meet RHS benchmarks for credit scores of 640 or above, PTI 

ratios of 29 percent or less, and DTI ratios of 41 percent or less. 

Additionally, the borrower’s household income would have had to be 

within RHS limits. When only credit score and PTI and DTI ratios were 

considered, at least an estimated 37 percent of FHA borrowers could 

have met the RHS criteria.

 49We used the benchmarks and did not consider any compensating factors that lenders 

can use to qualify a borrower who does not meet those benchmarks. Therefore, our 

estimate represents the minimum number of FHA borrowers who could have met key 

criteria for the RHS program. RHS sets household income limits based on property 

location and household size (different limits exist for one-to-four-person households and 

five-to-eight-person households). The loan-level data we analyzed on FHA borrowers 

included information on borrower income but not on household income or size. For this 

analysis, we assumed that the borrower’s income was the only source of household 

income and that all households consisted of no more than four people (the more restrictive 

limit). However, some FHA households likely had income from someone other than the 

borrower that could have pushed the household over the RHS income limit. To test the 

sensitivity of our assumption about household income, we calculated the median 

difference between RHS borrower incomes and their household incomes and applied that 

difference ($2,960) to all FHA borrowers in RHS-eligible areas. Under this scenario, we 

found the percentage of FHA borrowers who could have met all four RHS criteria fell from 

22 percent to 21 percent. See appendix I for additional information on our methodology.

At Least 22 Percent of 

FHA Borrowers in RHSEligible Areas Could Have 

Met Key RHS Criteria
Page 34 GAO-16-801 RHS Mortgage Guarantees

Figure 12: Estimated Number and Percentage of FHA Borrowers in RHS-Eligible Areas Who Could Have Met Key RHS Criteria 

for RHS-Guaranteed Home Purchase Loans in Fiscal Years 2010–2014

Note: The analysis focuses on 30-year, fixed-rate loans guaranteed by FHA (excluding loans for units 

in condominium and cooperative developments).

a

RHS has benchmarks for credit score and payment-to-income and debt-service-to-income ratios, but 

it also allows lenders some flexibility in applying these benchmarks by considering compensating 

factors such as a favorable borrower credit history. For this analysis, we used RHS’s benchmarks 

prior to considering compensating factors.

b

The loan-level data we analyzed on FHA borrowers included information on borrower income but did 

not include information on household income or size. For this analysis, we assumed that the 

borrower’s income was the only source of household income and that all households consisted of no 

more than four people (the more restrictive limit). Our analysis of RHS loan-level data found that the 

median difference between RHS borrower and household incomes was $2,960 (about 7 percent of 

the median RHS borrower income).

Although RHS’s benchmarks are relatively stricter than FHA’s and RHS 

has eligibility restrictions related to household income that FHA does not 

have, many FHA borrowers also could have met individual criteria for 

RHS-guaranteed loans (see fig. 13).50 For example, an estimated 72 

percent of FHA borrowers in RHS-eligible areas could have met RHS’s 

household income requirement (which we measured using borrower 

 50For this analysis, we considered each RHS benchmark individually and compensating 

factors were not relevant.
Page 35 GAO-16-801 RHS Mortgage Guarantees

income). This may reflect FHA’s relatively large concentration of first-time 

homebuyers (about 71 percent of the FHA borrowers we analyzed were 

first-time homebuyers), many of whom may have relatively lower 

incomes.

Figure 13: Estimated Percentage of FHA Borrowers in RHS-Eligible Areas Who Could Have Met Individual Criteria for RHSGuaranteed Home Purchase Loans in Fiscal Years 2010–2014

Notes: The analysis focuses on 30-year, fixed-rate loans guaranteed by FHA (excluding loans for 

units in condominium and cooperative developments). The loan-level data we analyzed on FHA 

borrowers included information on borrower income but did not include information on household 

income or size. For this analysis, we assumed that the borrower’s income was the only source of 

household income and that all households consisted of no more than four people (the more restrictive 

limit). Our analysis of RHS loan-level data found that the median difference between RHS borrower 

and household incomes was $2,960 (about 7 percent of the median RHS borrower income).

In contrast, fewer FHA borrowers (about 51 percent) could have met 

RHS’s benchmark for DTI ratio. As previously noted, several lenders with 

whom we spoke said that FHA provides lenders more flexibility than RHS 

in considering compensating factors related to DTI ratio, which results in 

some FHA borrowers with DTI ratios in excess of FHA’s benchmark (and 

consequently also of RHS’s benchmark).
Page 36 GAO-16-801 RHS Mortgage Guarantees

According to most lenders with whom we spoke, borrowers who meet the 

criteria for both the RHS and FHA programs primarily consider costs in 

deciding between the two programs. They stated that borrowers typically 

prefer the RHS-guaranteed loan over the FHA-guaranteed loan because 

the borrower’s up-front and monthly costs (measured by the amounts 

borrowers are required to pay) are lower. We asked lenders about other 

factors borrowers might consider, including how borrowers access the 

programs and the length of time to obtain the guarantee. They told us that 

for borrowers who meet the criteria for both programs, differences 

between the programs—except for cost—were small and had a minimal 

impact on borrowers. For example, lenders told us that there is little 

difference in how borrowers access the programs. Specifically, borrowers 

can access both RHS- and FHA-guaranteed loans through a variety of 

channels, including nationwide lenders, local banks, and mortgage 

brokers. Similarly, they explained that RHS’s 2-stage process for issuing 

guarantees versus FHA’s 1-stage process did not cause borrowers to opt 

for FHA-guaranteed loans.51 In addition, a 2016 survey found that up-front 

and monthly costs were a factor borrowers consider in choosing a home 

mortgage and that the importance of costs increased for borrowers with 

lower household incomes.52

 51RHS requires lenders to submit loans to RHS for approval before closing the loans. In 

contrast, approved FHA lenders can review and approve loans without prior submission to 

FHA. Congress provided RHS with authority similar to FHA’s to allow approved lenders to 

review and approve loans directly (Pub. L. No. 114-113, Div. A, sec. 743). RHS has not 

yet implemented this authority. 

52The Bureau of Consumer Financial Protection (also known as the Consumer Financial 

Protection Bureau) and the Federal Housing Finance Agency surveyed a representative 

sample of recent mortgage borrowers about their experiences in choosing and taking out 

a mortgage. The survey found that when taking out a loan for home purchase, 48 percent 

of borrowers rated low up-front costs (measured by low down payment) as a very 

important factor and 59 percent rated low monthly costs as a very important factor in 

making a choice. For purchase and refinance borrowers with low household incomes 

($50,000 to $99,999), approximately 56 percent rated low up-front costs as a very 

important factor and 70 percent rated low monthly costs as a very important factor in 

choosing a mortgage. In contrast, for borrowers with higher incomes ($175,000 or more), 

about 31 percent rated low up-front costs and 48 percent rated low monthly costs as very 

important factors in choosing a mortgage. See National Mortgage Database, Consumer 

Financial Protection Bureau, and the Federal Housing Finance Agency, A Profile of 2013 

Mortgage Borrowers: Statistics from the National Survey of Mortgage Originations, 

Technical Report 16-01 (Washington, D.C.: May 27, 2016).

Lender Views and Our 

Analysis Indicate that the 

Costs of RHS-Guaranteed 

Loans Make Them an 

Attractive Alternative to 

FHA-Guaranteed Loans
Page 37 GAO-16-801 RHS Mortgage Guarantees

Both RHS and FHA borrowers pay certain up-front and monthly costs for 

their guaranteed loans. In addition to closing costs and fees such as 

payments for home inspections and appraisals, RHS and FHA borrowers 

pay an up-front guarantee fee, any required down payment, and an 

annual guarantee fee (charged monthly).53 RHS and FHA charge the upfront and annual guarantee fees to help offset the cost to taxpayers of the 

loan guarantee programs. The guarantee fee amounts differ, in part 

because the programs have different requirements and goals for covering 

their long-term costs. According to RHS officials, since 2010 RHS has 

had the goal of making each year’s new cohort of guaranteed loans 

credit-subsidy-neutral. That is, initially the present value of the lifetime

estimated revenue (cash inflow) equals the present value of lifetime 

estimated expenses (cash outflow).54

In contrast, FHA historically has estimated that its loan guarantee 

program has a negative subsidy rate for each new cohort. That is, initially 

the present value of lifetime estimated revenue exceeds the present value 

of lifetime estimated expenses. FHA’s approach is consistent with the 

statutory requirement that it maintain a 2 percent reserve for its primary 

mortgage guarantee fund.55 FHA’s capital reserve represents the 

amounts in excess of those needed for estimated claims or other costs 

and is used to cover unanticipated increases in those estimated costs 

 53According to lenders, these closing costs and fees for RHS and FHA borrowers are 

typically paid using seller concessions (funds sellers provide to buyers to help pay for 

closing costs). RHS and FHA allow sellers to pay up to 6 percent of the loan amount (for 

RHS) or the lesser of the purchase price or the appraised value of the home (for FHA) on 

behalf of a buyer to help fund these closing costs. 

54Credit subsidy costs are the costs to the government of extending or guaranteeing 

credit. These costs are calculated based on the net present value of the estimated lifetime 

cash flows to and from the government, excluding administrative costs. For a mortgage 

guarantee program, cash inflows consist primarily of fees received from borrowers and 

cash outflows consist mostly of claim payments to lenders. The estimated credit subsidy 

costs from RHS-guaranteed loans substantially increased in recent years, partly due to 

high losses from the 2007–2011 housing crisis. See GAO-16-193.

55The Omnibus Budget Reconciliation Act of 1990 mandated that FHA achieve a capital 

ratio of at least 2 percent by fiscal year 2000 and maintain that level in all future years. 

See Pub. L. No. 101-508, § 2105, 104 Stat. 1388, 1388-19 (codified, as amended, at 12 

U.S.C. 1711(f)). Due partly to the 2007–2011 housing crisis, the capital ratio fell below 2 

percent for several years before coming back in compliance in 2015. FHA raised its 

guarantee fee multiple times to increase its capital reserves but implemented a fee cut in 

January 2015.
Page 38 GAO-16-801 RHS Mortgage Guarantees

before FHA draws on funds available through its permanent indefinite 

budget authority.56 RHS does not have a similar requirement, and 

therefore draws directly on its permanent and indefinite budget authority 

to cover all estimated cost increases.

As described in the hypothetical example below, borrower costs (as 

measured by amounts required at loan closing and paid monthly) would 

be lower for an RHS-guaranteed loan than for an FHA-guaranteed loan 

for the same property.57 On the basis of statements by most of the 

lenders we spoke with, the example assumes the same interest rate for 

both loans.

• As described previously, FHA requires borrowers to make a 3.5 

percent down payment, but RHS has no down-payment 

requirement.58 Thus, RHS borrowers would not need to bring any 

cash for a down payment to closing.

• RHS’s up-front guarantee fee is higher than FHA’s. In 2014, RHS’s 

fee was 2 percent of the loan amount and FHA’s was 1.75 percent. 

However, according to lenders with whom we spoke, most RHS and 

FHA borrowers finance their up-front guarantee fee into the loan 

amount and therefore do not need to bring cash to closing to cover 

this payment.

 56The Federal Credit Reform Act of 1990, Pub. L. No. 101-508, tit. V, 104 Stat. 1388, 

1388-610, codified, as amended, at 2. U.S.C. §§ 661-661f, generally provides federal loan 

guarantee programs with permanent indefinite budget authority to cover upward 

reestimates of credit subsidy costs. Permanent indefinite budget authority is available for 

obligation and expenditure without fiscal year limitation and is not limited to a specified 

amount or ceiling. In 2013, FHA exhausted the funds available in its capital reserve 

account and drew on $1.7 billion in permanent indefinite budget authority to cover 

estimated cost increases. 

57FHA’s 3.5 percent minimum down payment is required by statute (12 U.S.C. § 

1709(b)(9)(A)). We analyzed the borrower up-front and monthly costs for RHS and FHA 

loans considering various home prices and interest rates. Most lenders with whom we 

spoke said that interest rates for RHS- and FHA-guaranteed loans were very similar and 

were not systematically higher or lower for either type of loan. For additional information 

on our methodology, see appendix I.

58As noted previously, FHA permits borrowers to use a down-payment gift (that is, money 

received from authorized third parties, such as relatives, employers, or governmental 

agencies, where there is no expectation that the funds will be repaid) to make the down 

payment. In 2010–2014, approximately 26 percent of FHA borrowers in RHS-eligible 

areas received a down-payment gift.
Page 39 GAO-16-801 RHS Mortgage Guarantees

• Both programs require borrowers to pay an annual guarantee fee 

(charged monthly) for the life of the loan, which is calculated based on 

the scheduled outstanding loan balance.59 In 2014, RHS’s fee was 0.5 

percent and FHA’s minimum fee (for loans of $625,000 or less with 

LTV ratios of 95 percent or more) was 1.2 percent.60

As shown in figure 14, a hypothetical RHS borrower purchasing a 

$125,000 home in 2014 (near the median loan amount for home 

purchases made with RHS-guaranteed loans from 2010–2014) would 

have had lower up-front costs (based on the required down payment and 

assuming financing of up-front guarantee fees) than a borrower with an 

FHA-guaranteed loan. Assuming a 3.75 percent interest rate, the monthly 

mortgage payments (including the annual guarantee fee) during the first 

year would have been $50 less, or 7 percent lower, with an RHSguaranteed loan than with an FHA-guaranteed loan.61 Over the life of the 

loan, assuming the borrower made all monthly scheduled payments for 

30 years, the RHS borrower would have paid approximately 58 percent 

less in annual guarantee fees than the FHA borrower (approximately 

$11,000 for the RHS borrower versus $27,000 for the FHA borrower).62

 59Beginning in June 2013, FHA began collecting annual guarantee fees for the full term of 

the mortgage loan for FHA-guaranteed loans with LTV ratios greater than 90 percent at 

origination. Previously, the borrower no longer needed to pay the annual guarantee fee 

when the borrower’s LTV ratio was 78 percent or less.

60RHS and FHA annual guarantee fees are calculated based on the average annual 

unpaid principal balance of the loan. FHA’s fees for 30-year purchase loans vary 

somewhat, depending on whether the loan amount is more or less than $625,500 and 

whether the loan’s LTV ratio is higher or lower than 95 percent. Higher loan amounts and 

LTV ratios have somewhat higher fees.

61According to most lenders with whom we spoke, the interest rates charged for RHS- and 

FHA-guaranteed loans were similar. However, two lenders told us that the interest rates 

may differ slightly. As part of our illustrative analysis, we calculated borrower costs under 

scenarios in which the interest rate for the RHS loan was 0.25 percentage points higher or 

0.25 percentage points lower than the rate charged for the FHA loan. In both scenarios, 

the monthly costs of the RHS loan were lower than the costs of the FHA loan. See 

appendix I for additional discussion. 

62After 10 years, the RHS borrower would have paid approximately $5,600 in annual 

guarantee fees and the FHA borrower approximately $13,600 in annual guarantee fees.
Page 40 GAO-16-801 RHS Mortgage Guarantees

Figure 14: Illustrative Up-front and Monthly Costs for Purchasing a $125,000 Home in Fiscal Year 2014 Using a 30-Year FixedRate Mortgage Guaranteed by RHS or by FHA

Notes: The illustrative example assumes that the seller paid all closing costs and other fees and that 

the borrower made all payments as scheduled. The up-front guarantee fee (which is different for each 

program) is financed into the loan amount (the guarantee fee in this example is $2,551 for the RHS 

loan and $2,111 for FHA). After considering the up-front guarantee fee and any required down 

payment, the loan amounts are $127,551 for the RHS-guaranteed loan and $122,736 for the FHAguaranteed loan. The scheduled monthly cost does not include any additional amounts lenders 

collect to cover taxes, insurance, or other expenses. All numbers are rounded to the nearest dollar.

While RHS-guaranteed loans have lower up-front and monthly costs, they 

often have higher LTV ratios than FHA-guaranteed loans, because RHS 

does not require a down payment. In the hypothetical situation presented 

in figure 14, the RHS borrower’s LTV ratio at origination is 102 percent (a 

negative equity position), compared with 98 percent for the FHA 

borrower. Because RHS borrowers often start off with negative home 

equity, they may have fewer options than FHA borrowers to avoid default 

if they experience financial troubles. For example, they may find it more 

difficult to sell or refinance their homes to relieve unsustainable mortgage 

payments. Additionally, RHS borrowers may take longer than FHA 
Page 41 GAO-16-801 RHS Mortgage Guarantees

borrowers to build sufficient home equity to refinance into a conventional 

loan without needing to pay additional guarantee fees.63

RHS loans’ higher LTV ratios and lower guarantee fees relative to FHA 

loans help make loans more affordable. However, these features may 

also increase financial risks to the federal government from increased 

loan defaults and less revenue to cover unanticipated costs. Specifically, 

as discussed further in the next section of this report, higher LTV ratios

are associated with a higher probability of troubled loan performance. 

Furthermore, in setting guarantee fees, RHS does not have to raise 

sufficient revenue to maintain a capital reserve as FHA does. As a result, 

RHS’s program is not designed to cover unanticipated cost increases 

without drawing on its permanent and indefinite budget authority. These 

trade-offs highlight issues for RHS and FHA to consider in evaluating 

opportunities to consolidate the programs, as we recommended in 2012 

and reaffirm in this report.

Our analysis of loans RHS and FHA guaranteed in 2010 and 2011 found 

some differences in loan performance after 3 years. These differences 

included RHS’s lower prepayment rates and higher troubled loan rates 

(the share of loans at least 90 days delinquent, in the foreclosure 

process, or terminated with a claim) compared with FHA. Our statistical 

model also estimated that RHS loans would be expected to have higher 

troubled loan rates than FHA loans, due partly to the higher LTV ratios of 

RHS borrowers.

 63Conventional loans are mortgage loans that are not guaranteed by the federal 

government. Generally, borrowers with LTV ratios of 80 percent or less do not require a 

mortgage guarantee or mortgage insurance when obtaining a conventional loan.

RHS-Guaranteed 

Loans Were More 

Likely to Be Troubled 

after 3 Years than 

FHA-Guaranteed 

Loans
Page 42 GAO-16-801 RHS Mortgage Guarantees

After 3 years, the performance of comparable loans that RHS and FHA 

guaranteed in 2010 and 2011 in RHS-eligible areas differed.64 As shown 

in figure 15, RHS had a higher troubled loan rate than FHA (about 7 

percent for RHS and 6 percent for FHA).65 When we restricted the 

analysis to loans for properties in large rural towns and small town and 

isolated rural areas (using USDA’s Rural-Urban Commuting Area codes), 

the troubled loan rates were lower for both agencies, but RHS’s rate (6.1 

percent) remained higher than FHA’s (5.4 percent).

 64We analyzed loan-level data on the performance of 30-year, fixed-rate home purchase 

loans (excluding those for units in condominium and cooperative developments) that RHS 

and FHA guaranteed from October 2009 through September 2012 in RHS-eligible areas. 

For the purpose of comparing performance, we limited the FHA-guaranteed loans to those 

for properties in census tracts that were at least 95 percent in RHS-eligible areas and to 

borrowers with incomes within the county-level household income limits set by RHS. We 

restricted the data in this way to account for the absence of FHA limits on borrower 

household income, which resulted in FHA serving some borrowers with higher incomes 

than RHS is allowed to serve. Because the analysis in this section focuses on the 

payment status of the loans, we used the first month a loan payment was due (first 

payment month) as the starting point for measuring performance. The first payment month 

may be up to 2 months after the month the loan is guaranteed. Therefore, to examine the 

performance of loans that were guaranteed in 2010–2011, we focused on loans with first 

payment months from December 2009 through October 2011. In addition, the data we 

analyzed did not have performance information for about 0.2 percent each of the RHSand FHA-guaranteed loans.

65As noted previously, troubled loan rates are the number of loans at least 90 days 

delinquent, in the foreclosure process, or terminated with a claim divided by the number of 

loans guaranteed. As shown in figure 15, some of the loans RHS and FHA guaranteed 

prepaid, likely because the borrowers refinanced into new loans or sold their homes. 

Because we did not have performance information on the loans into which prepaying 

borrowers may have refinanced, we included prepayments only in the denominator of our 

calculation of troubled loan rates. As a result, we treated prepaid loans similarly to loans 

that were current or in an early stage of delinquency. This approach is consistent with the 

fact that RHS and FHA borrowers generally need to be current on their loans to use the 

RHS and FHA refinance programs and that the programs are designed to help borrowers 

lower their monthly loan payments, which may increase their ability to remain current. 

After 3 Years of 

Performance, RHS Had a 

Higher Troubled Loan 

Rate Than FHA
Page 43 GAO-16-801 RHS Mortgage Guarantees

Figure 15: Status of RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010 and 2011, 

after 3 Years of Performance

Note: For this analysis, we focused on 30-year, fixed-rate loans guaranteed by RHS and FHA for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Because the analysis in this figure focuses on the payment status of the loans, we 

used the first month a loan payment was due (first payment month) as the starting point for 

measuring performance. The first payment month may be up to 2 months after the month the loan is 

guaranteed. Therefore, to examine the performance of loans that were guaranteed in fiscal years 

2010–2011, we focused on loans with first payment months from December 2009 through October 

2011. We limited the set of FHA-guaranteed loans to those for properties in census tracts that were at 

least 95 percent in RHS-eligible areas and to borrowers with incomes within the county-level 

household income limits set by RHS. Percentages do not always sum to 100 percent due to rounding.

Additionally, across all RHS-eligible areas, RHS had a higher percentage 

of loans that were current (and not prepaid) than FHA did. Specifically, 

about 78 percent of RHS-guaranteed loans were current after 3 years, 

compared with 73 percent of FHA-guaranteed loans. In contrast, RHS 

had a substantially lower proportion of loans that prepaid relative to FHA. 

Specifically, about 9 percent of RHS-guaranteed loans and 16 percent of 

FHA-guaranteed loans prepaid after 3 years of performance. See 
Page 44 GAO-16-801 RHS Mortgage Guarantees

appendix V for additional information about the performance status of 

RHS- and FHA-guaranteed loans after 2 and 3 years of performance.66

According to representatives of some lenders and industry associations 

with whom we spoke, RHS would be expected to have lower prepayment 

rates than FHA because of differences in the RHS and FHA programs.67

As previously noted, prepayments can result from a borrower refinancing 

into a new loan. The greater initial home equity of FHA borrowers might 

have allowed them to more quickly reach the level of equity needed to 

refinance into a conventional loan. A few lenders and an industry 

association also noted that FHA’s streamline refinance program, available 

nationwide, allows existing FHA borrowers to refinance into a new FHAguaranteed loan through a process that involves fewer requirements than 

FHA’s traditional refinance process.68 In contrast, RHS had no streamline 

refinance program available to existing RHS borrowers in 2010 and 

2011.69

We also analyzed the status of comparable RHS- and FHA-guaranteed 

loans after 2 years of performance.70 In contrast to the 3-year troubled 

loan rates, we found that the agencies had almost identical 2-year 

troubled loan rates, although RHS’s rate was slightly lower (3.8 percent 

 66Due to the relatively brief period for our analysis of loan performance (2 to 3 years from 

the month of first payment), we did not isolate and analyze the foreclosure rate of RHSand FHA-guaranteed loans. According to the Federal Reserve Bank of Minneapolis, on 

average loans in foreclosure in 2010 took from 15 months to 2 years to complete 

foreclosure—meaning that relatively few of the loans we analyzed would have had time to 

complete this process. See: Kyle F. Herkenhoff and Lee E. Ohanian, “Foreclosure Delay 

and the U.S. Labor Market,” Economic Policy Paper 16-07 (Minneapolis, Minn.: May 

2016).

67As previously noted, we interviewed eight mortgage lenders and five industry 

associations.

68Under FHA’s streamline refinance program, FHA generally does not require an appraisal 

or the borrower’s credit score. FHA also does not require lenders to certify the borrower’s 

employment and income.

69RHS began offering a pilot program that initially was limited to 19 states in 2012. The 

pilot program was expanded in 2013 to 34 states and Puerto Rico and then made 

available nationwide in 2016.

70 For this analysis, we focused on loans with first payment months from December 2009 

through October 2012. See appendix V for additional information on our analysis results.
Page 45 GAO-16-801 RHS Mortgage Guarantees

for RHS and 3.9 percent for FHA). However, similar to the 3-year results, 

we found that RHS had a higher percentage of current loans and a lower 

percentage of prepaid loans than FHA after 2 years.

We developed a statistical model to examine factors that may explain 

differences between RHS and FHA troubled loan rates (the share of loans 

at least 90 days delinquent, in the foreclosure process, or terminated with 

a claim), including the characteristics of their guaranteed portfolios 

(represented by loan, borrower, and economic variables).71 For RHS and 

FHA separately, we analyzed the statistical relationships between the 

variables and the probability of the guaranteed loans becoming troubled 

after 3 years (that is, we estimated changes in the troubled loan rate 

associated with variations in the value of the variables). In general, we 

found that the statistical relationships between the variables were similar 

for both agencies. These similarities suggest that the way the agencies 

and lenders implement the two guarantee loan programs, including 

methods for evaluating default risk and ensuring compliance with 

underwriting standards, would be expected to yield similar troubled loan 

rates for loans with comparable characteristics. Thus, differences in loan 

performance are likely attributable to differences in portfolio 

characteristics.

To estimate the influence of portfolio characteristics on differences in 

agency troubled loan rates, we ran our model using a combined set of 

RHS and FHA loans.72 Specifically, we simulated troubled loan rates for 

 71As before, we restricted this analysis to loans to borrowers with incomes less than the 

income limits set by RHS. We used RHS and FHA loan-level data for loans guaranteed in 

2010–2011 and focused on loans with first payment months from December 2009 through 

October 2011. Among other things, the portfolio characteristics included borrower income 

and credit score, loan amount, loan interest rate, and DTI and LTV ratios at loan 

origination. We also used external data, including a Federal Housing Finance Agency 

house price index for nonmetropolitan areas to measure house price changes and data on 

the Treasury 10-year constant maturity rate to determine the interest rate spread (that is, 

the difference between the interest rate on the loan and the Treasury rate for the same 

period). Prior research has found that these variables influence loan performance. Other 

variables for which we lacked data, such as borrower employment status, may also 

influence troubled loan rates.

72The similarities in the separate RHS and FHA statistical relationships allowed us to 

generate meaningful results from the model using a data set that included both agencies’

loans.

Our Estimates Suggest 

That RHS Would Be 

Expected to Have a 

Higher Troubled Loan 

Rate Than FHA
Page 46 GAO-16-801 RHS Mortgage Guarantees

RHS and FHA based on a set of characteristics representing the average 

loan for each agency and compared these expected rates. Overall, the 

model estimated that RHS would be expected to have a somewhat higher 

3-year troubled loan rate than FHA when considering all portfolio 

characteristics. Specifically, RHS’s expected troubled loan rate was 6 

percent higher than FHA’s (see fig. 16).73 RHS’s higher expected rate 

relative to FHA’s is consistent with the pattern observed in the agencies’

actual troubled loan rates.74

Additionally, when we isolated the influence of individual portfolio 

characteristics on expected troubled loan rates, we found that LTV ratio 

and borrower income were the largest contributors to RHS’s higher 

expected rate, as follows (see fig. 16):75

• Our model estimated that RHS’s higher LTV ratios relative to FHA’s 

were associated with an expected troubled loan rate that was about 

11 percent higher than FHA’s.

• Similarly, our model estimated that RHS’s lower borrower incomes 

relative to FHA’s were associated with an expected troubled loan rate 

that was about 6 percent higher than FHA’s.

RHS would be expected to have relatively riskier characteristics in these 

areas due to program requirements that are less restrictive than FHA’s for 

down payment (as reflected in the LTV ratios) and more restrictive for 

household income.

 73We calculated the percent difference between the agencies’ expected troubled loan 

rates by subtracting the FHA rate from the RHS rate, dividing by the average of the FHA 

and RHS rates, and multiplying the quotient by 100. When we limited the analysis to RHSand FHA-guaranteed loans for properties in large rural towns and small town and isolated 

rural areas (as defined using USDA’s Rural-Urban Commuting Area classification), RHS’s 

3-year expected troubled loan rate remained higher than FHA’s. See appendixes VI and 

VII for additional information. 

74The specific magnitudes of the expected troubled loan rates and the actual troubled loan 

rates cannot be compared due to differences in the methodologies for calculating them.

75To calculate expected troubled loan rates associated with individual portfolio 

characteristics, we used the agency-specific averages for the characteristic of interest and 

held other characteristics at their average values for the combined set of RHS and FHA 

loans. See additional details on our methodology in appendix VI. 
Page 47 GAO-16-801 RHS Mortgage Guarantees

Figure 16: Estimated Influence of Portfolio Characteristics on Differences in 3-Year 

Performance of Home Purchase Loans RHS and FHA Guaranteed in RHS-Eligible 

Areas in Fiscal Years 2010 and 2011

Notes: For this analysis, we focused on 30-year, fixed-rate loans guaranteed by RHS and FHA for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Because the analysis in this figure focuses on the payment status of the loans, we 

used the first month a loan payment was due (first payment month) as the starting point for 

measuring performance. The first payment month may be up to 2 months after the month the loan is 

guaranteed. Therefore, to examine the performance of loans that were guaranteed in fiscal years 

2010–2011, we focused on loans with first payment months from December 2009 through October 

2011. We limited the set of FHA-guaranteed loans to those for properties in census tracts that were at 

least 95 percent in RHS-eligible areas and to borrowers with incomes within the county-level 

household income limits set by RHS. Troubled loan rates are the number of loans at least 90 days 

delinquent, in the foreclosure process, or terminated with a claim divided by the number of loans 

guaranteed. We calculated the percent difference between the agencies’ expected troubled loan rates

by subtracting the FHA rate from the RHS rate, dividing by the average of the FHA and RHS rates, 

and multiplying the quotient by 100. See appendixes VI and VII for more information about our 

estimation methodology and results for other portfolio characteristics.

In contrast, the estimated influences of other characteristics were 

relatively smaller and associated with lower estimated troubled loan rates 

for RHS, as follows (see fig. 16):

• RHS's lower DTI ratios and loan amounts were each associated with 

an expected troubled loan rate that was about 5 percent lower for 

RHS than for FHA.
Page 48 GAO-16-801 RHS Mortgage Guarantees

• Similarly, our model estimated borrower credit scores were associated 

with an expected troubled loan rate that was 3 percent lower for RHS 

than for FHA.

RHS would be expected to have relatively less risky characteristics along 

these dimensions due to its stricter benchmarks for credit score and DTI 

ratio and limits on household income (which indirectly affect the loan 

amounts).

In contrast to the 3-year results, our statistical model estimated that RHS 

would have a slightly lower expected 2-year troubled loan rate than FHA 

given the characteristics of the two agencies’ guaranteed portfolios. 

RHS’s marginally lower expected rate is consistent with the pattern 

observed in the agencies’ actual troubled loan rates after 2 years. The 

estimated influences of individual portfolio characteristics on expected 2-

year troubled loan rates were consistent with our estimates for the 3-year 

rates in terms of direction but differed in magnitude. For example, in the 

case of LTV ratio, the model estimated that RHS’s higher LTV ratios 

relative to FHA were associated with an expected 2-year troubled loan 

rate that was about 6 percent higher than FHA’s expected rate. By 

comparison, RHS’s corresponding 3-year rate was 11 percent higher than 

FHA’s.

The change in the estimated influence of LTV ratios may reflect that, as 

time passes, a borrower’s chances of experiencing events that can make 

mortgage payments unsustainable (for example, job loss) increase.

Borrowers with greater home equity may be better positioned to resolve 

such situations through refinancing or sale of the home. As previously 

noted, RHS borrowers often start off with less home equity (as reflected in 

their higher LTV ratios) than FHA borrowers and may find it more difficult 

to refinance or sell their homes to avoid default. See appendixes VI and 

VII for more information on the model and its results.

We provided a draft of this report to USDA and HUD for review and 

comment. USDA provided comments via e-mail from the audit liaison 

officer in Rural Development’s Financial Management Division. HUD 

provided technical comments, which we incorporated into the final report 

as appropriate. 

In its comments, USDA stated that our comparative analysis of the RHS 

and FHA programs added to the understanding of the programs’ 

capabilities and expanded upon our 2012 report, which concluded that 

Agency Comments 

and Our Evaluation
Page 49 GAO-16-801 RHS Mortgage Guarantees

overlap existed between federal housing programs. USDA also made 

several more specific points, as follows: 

• USDA said that the overlap we found between the RHS and FHA 

programs was minor and that RHS targets a specific underserved 

segment of the population, which would not attain successful 

homeownership but for RHS. We maintain that there is significant 

overlap between the RHS and FHA loan guarantee programs in RHSeligible areas, as evidenced by the estimated 36 percent of RHS 

borrowers and 22 percent of FHA borrowers who could have met the 

criteria for both programs. Furthermore, we found that the majority of 

RHS borrowers could have met individual FHA eligibility requirements 

(99 percent for loan amount and 51 percent for down payment) and 

individual qualifying benchmarks (99 percent for credit score, 85 

percent for PTI ratio, and 79 percent for DTI ratio). 

• Regarding our estimate of RHS borrowers with sufficient liquid assets 

to make a 3.5 percent down payment, USDA noted that many of them 

would have had little or no savings left to meet the additional 

expenses associated with homeownership if they had made such a 

down payment. USDA also said that the greater affordability of RHS 

loans compared with FHA loans helps families meet other financial 

needs. Our report discusses differences in RHS and FHA borrower 

costs, including the down payment and guarantee fees that make 

RHS loans more affordable. It also recognizes the view that some 

borrowers may want to use their liquid assets to improve the home, 

cover other expenses, or maintain savings for future use rather than 

make a down payment. However, our report also describes important 

trade-offs associated with these lower costs. For example, because 

RHS borrowers are not required to make a down payment and can 

finance their up-front guarantee fee, they often start off with negative 

home equity (LTV ratios over 100 percent). As we note in our report, 

they therefore may have fewer options than FHA borrowers to avoid 

default if they experience financial trouble. Additionally, RHS’s higher 

LTV ratios and lower guarantee fees relative to FHA also may 

increase financial risk to the federal government from higher potential 

loan defaults and less revenue to cover unanticipated costs of the 

loan guarantees. 

• USDA said that for methodological reasons, it did not believe that the 

differences we identified between expected RHS and FHA troubled 

loan rates were meaningful. USDA stated that RHS’s higher expected 

troubled loan rates were partly attributable to RHS’s higher LTV ratios 

(often greater than 100 percent) and that our performance analysis 
Page 50 GAO-16-801 RHS Mortgage Guarantees

did not fully account for differences in LTV ratios between the RHS 

and FHA portfolios. USDA added that there could be intraregional

differences in loan characteristics between RHS and FHA that were 

not reflected in our analysis. We maintain that the differences 

between expected troubled loan rates for RHS and FHA are 

meaningful and that our methodology properly accounted for 

differences between the RHS and FHA portfolios regarding LTV ratios 

and geographic areas served. Our statistical model included an LTV 

variable with four categories, including a category for loans with LTV 

ratios at or above 100 percent (which accounted for most of RHS’s 

portfolio) and a category for loans with ratios of 96 to 99.9 percent 

(which accounted for most of FHA’s portfolio). We used that structure 

based on our analysis of RHS loans, which found that loans with LTV 

ratios slightly above 100 percent performed worse than those with 

ratios slightly below 100 percent. We specifically highlight this issue in 

appendix VI of our report. This appendix contains discussion and 

analysis showing the importance of differentiating loans at the high 

end of the LTV range in modeling expected RHS loan performance 

and comparing the performance of the RHS and FHA portfolios. In 

addition, our analysis of expected loan performance took multiple 

steps to account for the potential impact of geographic differences 

between the RHS and FHA portfolios on loan performance. 

Specifically, we (1) restricted FHA loans to those for properties in 

RHS-eligible areas, (2) differentiated, within RHS-eligible areas,

between areas that were more rural and more urbanized, (3) included 

a set of variables in our model to control for house price appreciation 

at the state level, and (4) included a set of regional indicator variables 

(representing the nine census divisions) in our model to help control 

for factors not directly measured by other explanatory variables but 

that might differ by region. 

• Finally, USDA said it did not believe that “a single monolithic housing 

department” would best serve the highly differentiated housing market 

in rural America and that it was committed to seeking opportunities for 

intra-agency collaboration to expand mortgage access and improve 

the quality of housing for rural families. Our report does not state or 

intend to suggest that a single agency or single program is

necessarily the best way to serve rural housing needs. Rather, our 

report analyzes the extent of overlap between two similar programs 

and identifies issues that should be considered in assessing 

opportunities for consolidation. As we note in our report, consolidation 

may be beneficial in some situations and not in others, but a case-bycase analysis is needed to assess opportunities for improved 

efficiency and effectiveness and inform congressional decision
Page 51 GAO-16-801 RHS Mortgage Guarantees

making. For this reason, we maintain that RHS and FHA should 

implement our 2012 recommendation to report on and evaluate 

consolidation opportunities. 

As agreed with your office, unless you publicly announce the contents of 

this report earlier, we plan no further distribution until 30 days from the 

report date. At that time, we will send copies to interested congressional 

committees, USDA, and HUD. In addition, this report will be available at 

no charge on the GAO website at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact 

me at (202) 512-8678 or garciadiazd@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on 

the last page of this report. Key contributors to this report are listed in 

appendix VIII. 

Sincerely yours,

Daniel Garcia-Diaz

Director, Financial Markets and Community Investment 
Appendix I: Objectives, Scope, and 

Methodology

Page 52 GAO-16-801 RHS Mortgage Guarantees

This report compares the characteristics and performance of single-family 

mortgage loans guaranteed by the Department of Agriculture’s (USDA) 

Rural Housing Service (RHS) and by the Department of Housing and 

Urban Development’s (HUD) Federal Housing Administration (FHA) in 

fiscal years 2010–2014.1 Specifically, this report (1) compares the 

property, borrower, and loan characteristics of RHS- and FHAguaranteed loans in statutorily defined RHS-eligible areas (RHS-eligible 

areas); (2) estimates the number of RHS and FHA borrowers in RHSeligible areas who could have met key criteria for the other program and 

describes factors borrowers consider in choosing between the two 

programs; and (3) compares the performance of RHS- and FHAguaranteed loans in RHS-eligible areas.

To address these three objectives, we obtained and analyzed loan-level 

data from RHS and FHA for single-family home purchase and refinance 

mortgages the agencies guaranteed under RHS’s Section 502 program 

and FHA’s Section 203(b) program from 2010 through 2014 (a time frame 

which allowed for analysis of loan performance over multiple years).2 To 

facilitate comparison of the agencies’ guaranteed portfolios, we restricted 

our analysis to 30-year, fixed-rate mortgages to owner-occupants and 

excluded loans for units in condominium and cooperative developments.3

The final data sets included records for 672,736 RHS-guaranteed loans 

(644,514 purchase loans and 28,222 refinance loans) and 5,200,250 

FHA-guaranteed loans (3,528,256 purchase loans and 1,671,994 

refinance loans). Each loan record included data on property 

characteristics (such as the property’s state and zip code), borrower 

 1

Unless otherwise specified, years refer to federal fiscal years.

2

The RHS loan guarantee program was authorized by Section 706(b) of the CranstonGonzalez National Affordable Housing Act, Pub. L. No. 101-625, 104 Stat. 4079, 4284 

(1990), which added subsection 502(h) to the Housing Act of 1949, Pub. L. 81-171, 63 

Stat. 413 (codified, as amended, at 42 U.S.C. 1472(h)), and the FHA loan guarantee 

program was authorized by Section 203 of the National Housing Act, Pub. L. No. 73-479, 

48 Stat. 1246 (1934) as amended (codified at 12 U.S.C. 1709). In contrast to RHS, FHA 

uses the term “mortgage insurance” instead of “loan guarantee.” Because “insurance” and 

“guarantee” have the same meaning in the context of our review, we use guarantee 

throughout this report.

3

RHS does not guarantee mortgages with shorter terms or adjustable interest rates. 

Additionally, under its 203(b) program, FHA does not guarantee loans for cooperatives, 

and guaranteed few loans for condominiums in 2010–2014. 

Appendix I: Objectives, Scope, and 

Methodology

Data Used in Our Analysis
Appendix I: Objectives, Scope, and 

Methodology

Page 53 GAO-16-801 RHS Mortgage Guarantees

characteristics (such as credit score and measures of debt burden), and 

loan characteristics (such as loan amount and loan-to-value ratio) at 

origination. In addition, approximately 80 percent of the RHS loan records 

had data on borrowers’ liquid assets (cash or other assets, such as 

stocks and proceeds from the sale of property, which are readily 

convertible to cash).4 The data also included information on mortgage 

payment status, including number of days (RHS) or months (FHA) 

delinquent and other performance information (such as in the foreclosure 

process, prepaid, or terminated with a claim). To assess the reliability of 

these data, we tested the data for missing values, outliers, and obvious 

errors and reviewed documentation on the processes RHS and FHA used 

to collect and ensure the reliability and integrity of their data. We also 

interviewed RHS and FHA officials to discuss interpretations of various 

data fields. We concluded that the data we used were sufficiently reliable 

for purposes of comparing the characteristics and performance of RHSand FHA-guaranteed loans and estimating the extent to which RHS and 

FHA borrowers could have met key criteria for the other program.

We supplemented the RHS and FHA data with additional information. 

Specifically, we determined whether each mortgaged property was 

located in an RHS-eligible area using RHS’s boundary data.5 The 

statutory definition of RHS-eligible areas changed in 2014, and some 

areas that were previously eligible in 2010–2014 were no longer eligible. 

To identify RHS-guaranteed loans with properties in RHS-eligible areas 

according to the new definition, we used loan-level data on the property’s 

location (expressed as latitude and longitude). Of the 672,736 loans, 

approximately 5 percent or 31,394 loans RHS guaranteed in 2010–2014 

were no longer in RHS-eligible areas using the new definition. We 

excluded these loans from our analysis. As we did not have property 

addresses for the FHA-guaranteed loans, we used each property’s 

 4

Data on liquid assets were not available for the approximately 20 percent of borrowers 

whose loan guarantee applications were submitted manually. Lenders can submit loans 

for an RHS guarantee electronically or manually. According to RHS officials, more data 

are collected and stored for loans submitted electronically, including data on liquid assets, 

than for loans submitted manually. The proportion of guaranteed loans submitted 

electronically increased from approximately 56 percent in 2010 to 96 percent in 2014.

5

For this analysis, we used the statutory definition of RHS-eligible. The eligible areas were 

updated in 2014 and 2015 to take into account data from the 2010 Census. See The 

Agricultural Act of 2014, Pub. L. No. 113-79, § 6208, 128 Stat. 649, 861.
Appendix I: Objectives, Scope, and 

Methodology

Page 54 GAO-16-801 RHS Mortgage Guarantees

census tract to determine whether the property was located in an RHSeligible area.

In addition, we assigned a “rurality” code to each loan using USDA’s 

Rural-Urban Commuting Area codes. Developed by USDA’s Economic 

Research Service and the U.S. Health Resources and Services 

Administration, the codes consist of 10 primary and 21 secondary codes 

for classifying census tracts in the United States on a continuum from 

rural to urban based on daily commuting patterns and population density.6

For ease of presentation, we used the Washington State Department of 

Health’s four-tiered consolidated taxonomy of the codes. The taxonomy 

classifies all properties as one of the following:

• Urban. Adjoining census tracts in built-up areas with a total population 

of 50,000 or more.

• Suburban. Areas with high commuting flows to urban areas and all 

areas where 30-49 percent of the population commutes to urban 

areas for work.

• Large rural town. Towns with populations of between 10,000 and 

49,000 and surrounding rural areas where 10 percent or more of the 

population commutes to the town and 10 percent or more of the 

population commutes to an urban area for work.

• Small town and isolated rural area. Towns with populations of less 

than 10,000 and their surrounding commuter areas and other isolated 

rural areas that are more than 1 hour driving distance to the nearest 

city.7

This classification system was designed to support descriptive analysis of 

census tract data by providing information about the general character of 

an area.

Finally, for each RHS- and FHA-guaranteed loan, we also assigned a 

census region (based on the state where the property was located) and a 

10-year Treasury constant maturity rate at the time of origination (using 

 6

The codes were updated to take into account the results of the 2010 Census.

7

Washington State, Department of Health, Guidelines for Using Rural-Urban Classification 

Systems for Public Health Assessment (Feb. 5, 2009).
Appendix I: Objectives, Scope, and 

Methodology

Page 55 GAO-16-801 RHS Mortgage Guarantees

publicly available data from the Board of Governors of the Federal 

Reserve System).8

To compare the property, borrower, and loan characteristics of singlefamily home mortgages RHS and FHA guaranteed in 2010–2014, we 

reviewed agency documentation on the Section 502 and Section 203(b) 

programs and analyzed the loan-level data discussed previously. To 

identify similarities and differences between the two agencies’ guarantee 

programs, we reviewed relevant statutes and regulations, RHS and FHA 

policy guidelines, and documentation related to the agencies’ loan-level 

data.9 We also reviewed our 2012 report comparing the RHS and FHA 

single-family loan guarantee programs.10 We focused our analysis of the 

loan-level data on purchase loans. However, in appendix III, we present 

tables showing the characteristics of RHS and FHA refinance loans.

Using data in the agency loan records, we compared the characteristics 

of RHS and FHA purchase loans for properties located in RHS-eligible 

areas (based on the statutory definition of eligibility). As noted previously, 

we did not have the property addresses associated with the FHA loans, 

but we did have the associated census tracts. We used a property’s 

census tract to determine whether the property was located in an RHSeligible area. We considered FHA loans for properties in census tracts 

where 66.7 percent or more of the tract was in an RHS-eligible area to be 

RHS-eligible (a total of 880,294 loans). We separately analyzed the 

 8

Rates on 30-year, fixed-rate mortgages are commonly compared with the 10-year 

Treasury rate. See Howard L. Roth, Volatile Mortgage Rates—A New Fact of Life?

Federal Reserve Bank of Kansas City Economic Review (Kansas City, Kans.: March 

1988).

9

Sources reviewed included United States Department of Agriculture, SFH Guaranteed 

Loan Technical Handbook, HB-1-3555 (Washington, D.C.), accessed on July 2015 at 

http://www.rd.usda.gov/publications/regulations-guidelines/handbooks#hb13555; 

Department of Housing and Urban Development, Lenders’ Guide to the Single-Family 

Mortgage Insurance Process, 4155.2 (Washington, D.C.: Mar. 24, 2011) and Mortgage 

Credit Analysis for Mortgage Insurance on One-to-Four Unit Mortgage Loans, 4155.1 

(Washington, D.C.: Mar. 24, 2011). We also reviewed various HUD mortgagee letters and 

RHS administrative notices related to their respective loan guarantee programs.

10GAO, Housing Assistance: Opportunities Exist to Increase Collaboration and Consider 

Consolidation, GAO-12-554 (Washington, D.C.: Aug. 16, 2012).

Characteristics of RHSand FHA-Guaranteed 

Loans
Appendix I: Objectives, Scope, and 

Methodology

Page 56 GAO-16-801 RHS Mortgage Guarantees

characteristics of FHA loans for properties not in RHS-eligible areas and 

present that analysis in appendix IV.

We compared the property, borrower, and loan characteristics of RHS 

and FHA purchase loans by calculating the number and percentage of 

loans that fell into different categories or ranges of values for each 

characteristic. To analyze property characteristics, we compared the 

rurality, state, Census region, and construction type (manufactured or not 

manufactured home) of properties with RHS- and FHA-guaranteed loans. 

To analyze borrower characteristics, we compared the credit score, 

payment-to-income (PTI) and debt-service-to-income (DTI) ratios, annual 

income, first-time homebuyer status, and borrower-identified race and 

ethnicity of RHS and FHA borrowers. For borrower race and ethnicity, we 

used the Home Mortgage Disclosure Act classifications, which place 

borrowers in one of the following categories: American Indian or Alaska 

Native, Asian, black or African-American, Native Hawaiian or other Pacific 

Islander, Hispanic or Latino, white, or borrower did not disclose.11 To 

analyze loan characteristics, we compared the loan amount, loan-to-value 

(LTV) ratio (including any financed up-front guarantee fees), and interest 

rate spread of RHS- and FHA-guaranteed loans.

For refinance loans, RHS provided loan-level data for two refinance 

programs (refinance of RHS direct loans to guaranteed loans and 

refinance of existing RHS-guaranteed loans) and FHA provided data on 

three refinance programs (refinance of conventional loans to FHAguaranteed loans, refinance of existing FHA-guaranteed loans (not 

streamlined), and FHA streamline refinance program).12 Based on our 

analysis of the program requirements for RHS and FHA refinance loans, 

we determined that certain aspects of RHS’s and FHA’s program policies 

made direct comparison of the two programs problematic. For example, 

FHA allowed for cash-out refinances (where the borrower refinances their 

mortgage at a higher amount than the loan balance and uses the 

remaining funds for other purposes), while RHS did not. In addition, less 

 11In addition, where non-Hispanic or Latino borrowers identified more than one race we 

added an additional classification of “more than one race.” For this analysis, we made the 

race and ethnicity categories mutually exclusive.

12Loans refinanced under the “streamlined” process generally require limited credit 

documentation and underwriting and do not require a new appraisal (a valuation of the 

property to be used as collateral for the loan).
Appendix I: Objectives, Scope, and 

Methodology

Page 57 GAO-16-801 RHS Mortgage Guarantees

data were available for refinance loans because certain refinance 

programs do not require collection of information such as LTV ratio and 

borrower credit score (in the case of streamline refinance loans). As a 

result, we analyzed the characteristics of each agency’s refinance loans 

(and present the analysis in app. III) but did not directly compare the 

results as we did for purchase loans.

To estimate the number and percentage of RHS and FHA borrowers in 

RHS-eligible areas who could have met key criteria for the other agency’s 

guarantee program in 2010–2014, we compared the characteristics of 

RHS-guaranteed loans to the requirements and benchmarks for FHA’s 

program and compared the characteristics of FHA-guaranteed loans to 

the requirements and benchmarks for RHS’s program.

To do this, we first reviewed RHS and FHA program documents and 

analyzed agency loan-level data. Specifically, we examined statutes and 

regulations for the RHS and FHA loan guarantee programs and RHS and 

FHA guidelines and policy documents (such as handbooks, mortgagee 

letters, and administrative notices) to identify each program’s key 

eligibility and qualifying criteria, including statutory requirements and 

underwriting benchmarks (see fig. 17).13 Statutory requirements included 

minimum down payments and limits on loan amount and borrower 

household income. Underwriting benchmarks included target values set 

by the agencies for borrower credit score and PTI and DTI ratios.

 13Sources reviewed included United States Department of Agriculture, SFH Guaranteed 

Loan Technical Handbook, HB-1-3555, (Washington, D.C.), accessed on July 2015, 

http://www.rd.usda.gov/publications/regulations-guidelines/handbooks, and Department of 

Housing and Urban Development, Lenders’ Guide to the Single-Family Mortgage 

Insurance Process, 4155.2 (Washington, D.C.: Mar. 24, 2011), Mortgage Credit Analysis 

for Mortgage Insurance on One-to-Four Unit Mortgage Loans, 4155.1 (Washington, D.C.: 

Mar. 24, 2011), and annual HUD mortgagee letters on maximum loan amounts. 

Estimates of RHS and 

FHA Borrowers Who 

Could Have Met Key 

Criteria for the Other Loan 

Guarantee Program
Appendix I: Objectives, Scope, and 

Methodology

Page 58 GAO-16-801 RHS Mortgage Guarantees

Figure 17: Key Eligibility Requirements and Qualifying Benchmarks for RHS- and 

FHA-Guaranteed Home Purchase Loans, Fiscal Years 2010–2014

a

The size of loans guaranteed by RHS is effectively limited by RHS’s borrower household income 

requirements and the payment-to-income ratio.

b

The maximum loan limit for single-unit properties in high-cost exception areas was $1,094,625 from 

2010 through December 2013 and $938,250 starting January 2014.

c

According to RHS and FHA guidelines, borrowers can qualify for a guaranteed mortgage without 

meeting every benchmark if certain compensating factors are present, such as proof of continuous 

employment or cash reserves.

d

Qualified borrowers with credit scores as low as 581 can obtain an RHS-guaranteed loan if the loan 

is manually underwritten and the lender provides additional documentation of borrower 

creditworthiness.

e

Benchmark for FHA’s maximum financing option. Qualified borrowers with credit scores of 500 to 

579 can obtain FHA-guaranteed loan if they make a down payment of 10 percent.

Next, we appended information provided by the agencies to the RHS and 

FHA loan-level data in conjunction with additional data provided by the 

agencies. As before, we (1) focused on 30-year, fixed-rate mortgage 

loans guaranteed by RHS and FHA in 2010–2014 for purchasing singlefamily homes (excluding loans for units in condominium and cooperative 
Appendix I: Objectives, Scope, and 

Methodology

Page 59 GAO-16-801 RHS Mortgage Guarantees

developments) and (2) considered FHA loans to be in RHS-eligible 

locations if the properties were in census tracts where 66.7 percent or 

more of the tract was located in an RHS-eligible area. As noted 

previously, data on RHS borrowers’ liquid assets (cash or other assets, 

such as stocks and proceeds from the sale of property, which are readily 

convertible to cash) were not available for approximately 20 percent of 

RHS borrowers. Our analysis assumed no liquid assets for borrowers for 

whom data were not available.

The information we appended to the loan-level data included the 

following, if applicable:

• FHA county-level loan limits to each RHS loan record based on the 

longitude and latitude of the mortgaged property.

• RHS annual up-front guarantee fee (as a percentage ranging from 2 

percent to 3.5 percent) to each RHS loan record based on the loan’s 

origination year.

• RHS county-level household income limits to each FHA loan record 

based on the loan’s origination year and associated census tract (for 

determining the county in which the mortgaged property was located). 

RHS’s household income limits were different for one-to-four-person 

households and five-to-eight-person households. As we did not have 

any information on the size of FHA borrower households, we 

assumed that the borrower’s income was the only source of 

household income and that all households consisted of no more than 

four people (the more restrictive limit).14

Using the appended data sets, we calculated the number and percentage 

of RHS borrowers who could have met FHA’s criteria and the number and 

percentage of FHA borrowers who could have met RHS’s criteria. To do 

this, we compared the relevant borrower and loan characteristics of each 

loan to the applicable requirements and benchmarks for the other 

agency’s program (as described in more detail below). In applying these 

 14RHS’s household income limits are the same for one-person, two-person, three-person, 

and four-person households. Data from the American Community Survey 2010–2014 

Estimates show that in approximately 95 percent of census tracts, the average household 

size for owner-occupied units was four persons or fewer. The American Community 

Survey is an ongoing survey that provides publicly available information, such as whether 

people own or rent their home, on a yearly basis about the United States and the 

population. 
Appendix I: Objectives, Scope, and 

Methodology

Page 60 GAO-16-801 RHS Mortgage Guarantees

benchmarks, we did not consider the presence of compensating factors—

that is, borrower strengths that may lead a lender to qualify a borrower 

who does not meet all benchmarks. For example, RHS and FHA allow 

lenders to qualify a borrower with a DTI ratio higher than their 

benchmarks when the borrower has additional cash reserves. As a result, 

our estimates represent the minimum number of borrowers who might 

have met criteria for credit score and PTI and DTI ratios for the other 

program.

To assess the extent to which RHS borrowers could have met FHA’s 

criteria for borrower credit score and PTI and DTI ratios, we compared 

pertinent information in the RHS loan records with FHA’s benchmarks for 

these criteria. Similarly, to assess the extent to which RHS borrowers 

could have met FHA’s criterion for loan amount, we compared the RHS 

loan amounts to the applicable FHA loan limit based on the year the loan 

was originated and the county in which the mortgaged property was 

located. We first determined the number and percentage of RHS 

borrowers who could have met individual criteria and then determined the 

number and percentage who could have met all of the criteria 

simultaneously.

To estimate the number and percentage of RHS borrowers who could 

have met FHA’s criterion for down payment (3.5 percent minimum down 

payment requirement), we used RHS data on borrowers’ liquid assets, 

LTV ratios, and up-front guarantee fees (as a percentage of the loan 

amount).15 For this analysis, we assumed that any LTV ratio below 100 

percent reflected money the borrower had paid towards a down payment 

and that all RHS borrowers had financed the applicable 2010–2014 RHS 

up-front guarantee fee into their loans.16 In addition, for each loan, we 

used the property’s appraised value to calculate the amount the borrower 

 15RHS’s data on borrower’s liquid assets excluded assets used for a down payment or 

closing costs.

16While it is possible in some cases that the LTV ratio was below 100 percent because the 

property’s appraised value exceeded the purchase price, RHS officials and lenders we 

spoke with said that the appraised value and the purchase price of a property are 

generally equivalent. According to most lenders with whom we spoke, RHS and FHA 

borrowers almost always finance the up-front guarantee fee into their loan.

RHS Borrowers Who Could 

Have Met FHA Criteria
Appendix I: Objectives, Scope, and 

Methodology

Page 61 GAO-16-801 RHS Mortgage Guarantees

would have been required to pay to make a 3.5 percent down payment.17

We then determined the number and percentage of RHS borrowers who 

had (1) sufficient liquid assets to make at least a 3.5 percent down 

payment, (2) LTV ratios corresponding to at least the minimum down 

payment amount, or (3) a combination of liquid assets and LTV ratios 

corresponding to at least the minimum down payment amount. As 

previously discussed, RHS did not have data on liquid assets for 

approximately 20 percent of the borrowers, so we assumed that those 

borrowers had no liquid assets. In addition, it is unknown how many RHS 

borrowers could have obtained additional assets from a third party to pay 

the down payment.18 Thus, our estimate represents the minimum number 

of RHS borrowers who could have met FHA’s down-payment 

requirement.

Finally, based on the analysis described above, we estimated the number 

and percentage of RHS borrowers who could have met FHA criteria for 

borrower credit score, PTI and DTI ratios, loan amount, and down 

payment simultaneously. These 36 percent of RHS borrowers 

represented the group who could have qualified for an FHA-guaranteed 

home purchase loan.

To assess the extent to which FHA borrowers could have met RHS’s 

criteria for borrower credit score and PTI and DTI ratios, we compared 

pertinent information in the FHA loan records with RHS’s benchmarks. 

We first determined the number and percentage of FHA borrowers who 

could have met the individual RHS criteria and then determined the 

number and percentage who could have met all of the criteria 

simultaneously.

 17According to FHA policy, the required 3.5 percent down payment is calculated based on 

the lesser of the appraised value or the purchase price of the property. RHS officials and 

lenders we spoke with said the appraised value and the purchase price of a property are 

generally equivalent. By using the appraised value, we likely somewhat overestimated the 

amount of the required down payment and therefore likely somewhat underestimated the 

number of RHS borrowers who could have met FHA’s down-payment requirement.

18FHA allows borrowers to obtain third-party gifts from acceptable sources, such as family 

members, employers, and governmental agencies to make the 3.5 percent required down 

payment.

FHA Borrowers Who Could 

Have Met RHS Criteria
Appendix I: Objectives, Scope, and 

Methodology

Page 62 GAO-16-801 RHS Mortgage Guarantees

To estimate the number and percentage of FHA borrowers who could 

have met RHS’s criterion for household income, we compared the 

amount of each FHA borrower’s income with the applicable RHS income 

limit.19 However, FHA’s loan-level data contained information on borrower 

income but not on household income or size. FHA does not collect data 

on household income, so we assumed that FHA borrower and household 

income were equivalent. Under that assumption, we estimated that 72 

percent of FHA borrowers fell within RHS’s income limits. By assuming 

borrower income was the only source of household income, our analysis 

potentially overestimated the number of FHA borrowers who could have 

met RHS’s household income limits. To test the sensitivity of our estimate 

to that assumption, we recalculated our estimate using an alternative 

assumption. Some FHA households likely had income from someone 

other than the borrower that could have pushed the household over the 

RHS income limit. To account for this possibility, we calculated the 

median difference between RHS borrower incomes and their household 

incomes and added that amount ($2,960) to the incomes of all FHA 

borrowers.20 Under this assumption, the percentage of FHA borrowers 

who met RHS’s income limits decreased from 72 percent to 70 percent.

Finally, based on the analysis described earlier, we estimated the number 

and percentage of FHA borrowers who could have met RHS’s criteria for 

borrower credit score, PTI and DTI ratios, and household income 

simultaneously. These borrowers represented the group who could have 

qualified for an RHS-guaranteed home purchase loan. We made the 

estimates using both income assumptions (the base case of household 

income equivalent to borrower income and the alternative of household 

income equivalent to borrower income plus $2,960). The difference 

between the two estimates was one percentage point (22 percent and 21 

percent for the base case and alternative assumptions, respectively).

 19By statutory requirement, the household income of an RHS borrower may not exceed 

115 percent of the area median income.

20Using the median difference in RHS borrower incomes and household incomes means 

that one-half of RHS borrowers had differences in their income and household income 

less than this value and one-half had differences greater than this value. Using a median 

value in this calculation ensures that the results are not distorted by outlier data, but it 

does not allow us to take into account the individual results of each loan. 
Appendix I: Objectives, Scope, and 

Methodology

Page 63 GAO-16-801 RHS Mortgage Guarantees

We expanded our analysis of borrowers who could have qualified for the 

other program by disaggregating the results by location type. Specifically, 

using USDA’s Rural-Urban Commuting Area classification system, we 

estimated the number and percentage of RHS and FHA borrowers in 

urban, suburban, large rural town, and small town and isolated rural area 

who could have met all of the other program’s key criteria (see table 2).

Table 2: Estimated Number and Percentage of RHS and FHA Borrowers Who Could Have Met All Criteria for the Other 

Program by Rurality Using USDA’s Rural-Urban Commuting Area Classification System in Fiscal Years 2010–2014 

Rurality category

Number of RHS 

borrowers who could 

have met all FHA criteria

Percentage of RHS 

borrowers who could 

have met all FHA criteria

Number of FHA 

borrowers who could 

have met all RHS criteria

Percentage of FHA 

borrowers who could 

have met all RHS criteria

Urban 66,797 30 76,075 39

Suburban 84,741 38 74,677 38

Large rural town 48,170 22 29,961 15

Small town and 

isolated rural area 23,014 10 13,939 7

Source: GAO analysis of U.S. Department of Agriculture (USDA) data and loan-level data from FHA. | GAO-16-801

Note: For this analysis, we considered Rural Housing Service (RHS) criteria for borrower credit score, 

payment-to-income and debt-service-to-income ratios, and household income limits. We considered 

Federal Housing Administration (FHA) criteria for borrower credit score, payment-to-income and debtservice-to-income ratios, loan amount, and down payment.

Finally, we analyzed RHS and FHA loan-level data to estimate the 

number and percentage of RHS and FHA borrowers by loan cohort 

(2010–2014) who could have met all of the other program’s key criteria 

(see table 3).21

 21A cohort is the set of loans an agency guarantees in a fiscal year. 

Results by Rural-Urban 

Commuting Areas and Loan 

Cohort
Appendix I: Objectives, Scope, and 

Methodology

Page 64 GAO-16-801 RHS Mortgage Guarantees

Table 3: Estimated Number and Percentage of RHS and FHA Borrowers in RHS-Eligible Areas Who Could Have Met All

Criteria for the Other Program by Loan Cohort, Fiscal Years 2010–2014

Fiscal year

Number of RHS borrowers 

who could have met all 

FHA criteria

Percentage of RHS 

borrowers who could have 

met all FHA criteria

Number of FHA 

borrowers who could 

have met all RHS criteria

Percentage of FHA 

borrowers who could have 

met all RHS criteria

2010 47,674 39 50,065 21

2011 40,836 35 37,700 22

2012 44,973 35 36,936 23

2013 48,665 35 39,703 24

2014 40,680 37 30,265 21

Source: GAO analysis of RHS and FHA loan-level data. | GAO-16-801

Note: For this analysis, we considered Rural Housing Service (RHS) criteria for borrower credit score, 

payment-to-income and debt-service-to-income ratios, and household income limits. Similarly, we 

considered Federal Housing Administration (FHA) criteria for borrower credit score, payment-toincome and debt-service-to-income ratios, loan amount, and down payment.

To analyze the factors that RHS and FHA borrowers who meet the criteria 

for both programs consider in choosing between the two, we analyzed 

data on up-front and monthly costs, interviewed eight lenders and five 

industry stakeholders, and analyzed a survey published in 2016 of 

borrower opinions. To describe RHS’s and FHA’s methodologies for 

calculating up-front and annual costs, we (1) reviewed RHS’s periodic 

notices and policy guidance on up-front and annual guarantee fees and 

RHS’s Guarantee Up-front and Annual Fee Calculator and (2) reviewed 

FHA’s policy handbook and mortgagee letters containing information on 

up-front and annual costs and FHA’s methodology for calculating 

guarantee fees.22

To compare illustrative up-front, monthly, annual, and lifetime costs of 

RHS- and FHA-guaranteed loans in 2014, we estimated costs for homes 

with a $125,000 purchase price and a mortgage interest rate of 3.75 

 22For example, for RHS calculations, see United States Department of Agriculture, 

“Single-Family Housing Guaranteed Annual Fee: User Guide” ver. 2.0 (Washington, D.C.: 

October 2012) and USDA’s final rule requiring an annual fee for all loan obligations 

(Federal Register, vol. 77, no. 133; Wed. July 11, 2012). 

Factors Considered by 

RHS and FHA Borrowers 

in Choosing between the 

Two Loan Guarantee 

Programs
Appendix I: Objectives, Scope, and 

Methodology

Page 65 GAO-16-801 RHS Mortgage Guarantees

percent.23 To calculate the up-front and annual costs for each program, 

we assumed that:

• the appraised value and purchase price of the property were the 

same;

• the full up-front guarantee fee was financed;

• all closing costs and fees (other than the up-front guarantee fee) were 

paid by the seller (through seller concessions);

• the interest rates were identical; and

• the loan payments were made on time for the life of the loan.

To calculate the up-front costs of RHS-guaranteed loans, we first 

calculated the amount of the up-front guarantee fee based on the 

purchase price of the property and the 2 percent up-front fee percentage 

RHS charged in 2014.24 Second, we added the up-front fee to the 

purchase price to calculate the final loan amount.25

To calculate the up-front costs for FHA-guaranteed loans, we (1) 

calculated the amount of the required 3.5 percent down payment based 

on the appraised value of the property, (2) calculated the base loan 

amount by subtracting the down payment from the initial purchase price, 

(3) calculated the amount of the up-front guarantee fee (FHA’s up-front 

fee was 1.75 percent in 2014) using the base loan amount, and (4) 

calculated the final loan amount by adding the up-front fee to the base 

loan amount.26 For both RHS and FHA loans, we assumed that the 

amount of cash required at loan closing was equivalent to the amount of 

the required down payment (3.5 percent for the FHA loan and zero for the 

RHS loan).

 23The median RHS loan amount was $124,000 in 2010–2014. 

24To calculate up-front, monthly, annual, and lifetime costs for RHS loans, we used the 

RHS calculator version PV2.0 as of October 1, 2015. 

25For RHS borrowers, the up-front fee is the total loan amount (including the financed upfront guarantee fee) times the up-front guarantee fee percentage. 

26To calculate the monthly, annual, and lifetime costs for FHA loans, we used FHA’s 

published formulas found in Federal Housing Administration, Monthly (Periodic) Mortgage 

Insurance Premium Calculation, attachment to Mortgagee Letter 98-22 (Washington, D.C.: 

May 14, 1998).
Appendix I: Objectives, Scope, and 

Methodology

Page 66 GAO-16-801 RHS Mortgage Guarantees

To calculate the illustrative monthly, annual, and lifetime costs of RHSand FHA-guaranteed loans, we calculated:

1. the monthly principal and interest payment based on the final loan 

amount (including the financed up-front guarantee fee);

2. the amount of the annual guarantee fee by multiplying the annual 

average outstanding loan balance by the annual guarantee fee 

percentage (in 2014, the annual guarantee fee was 0.5 percent for 

RHS loans and 1.2 percent for FHA loans);

27

3. the monthly cost of the annual guarantee fee by dividing the 

amount of the annual guarantee fee by 12 (for 12 months); and

4. the total monthly costs by adding the monthly principal and 

interest payment to the monthly cost of the annual guarantee fee.

To test the sensitivity of our up-front, monthly, and annual cost 

calculations, we also calculated those costs assuming alternative home 

purchase amounts ($80,000, $100,000, $135,000, and $150,000) and 

interest rates (6 and 15 percent). We found that for all purchase amounts 

and interest rates, RHS had lower cash required at closing than FHA 

because RHS had no down-payment requirement. In addition, we found 

that as the assumed interest rate increased to 6 and 15 percent, RHS’s 

monthly costs (principal and interest and annual guarantee fees charged 

monthly) continued to be lower than FHA’s, although the percentage 

difference between RHS and FHA monthly costs decreased.28

To test the sensitivity of our results to the assumption that interest rates 

for RHS- and FHA-guaranteed loans were identical, we also calculated 

monthly costs (for a $125,000 home) under scenarios in which the 

interest rate charged for the RHS loan was higher or lower than the 3.75 

percent interest rate charged for the FHA loan. Specifically, we calculated 

 27FHA’s fees for 30-year purchase loans vary somewhat, depending on whether the loan 

amount is more or less than $625,500 and whether the loan’s LTV ratio is higher or lower 

than 95 percent. Higher loan amounts and LTV ratios have somewhat higher fees.

28For example, the percentage difference decreased from 7 percent for a loan with a 3.75 

percent interest rate to 1 percent for a loan with a 15 percent interest rate.
Appendix I: Objectives, Scope, and 

Methodology

Page 67 GAO-16-801 RHS Mortgage Guarantees

the cost to a hypothetical borrower where the interest rate for the RHS 

loan was 0.25 percentage points higher (that is, 4.0 percent) and 0.25 

percentage points lower (that is, 3.5 percent) than the rate charged for the 

FHA loan. In both scenarios, the monthly costs of the RHS loan remained 

lower than the costs of the FHA loan.29

To obtain the perspective of program participants, we interviewed a 

nonprobability sample of eight mortgage lenders selected to capture 

variation in the geographic areas served, volume of guaranteed loans 

originated, and mix of RHS and FHA business. To identify these lenders, 

we analyzed data collected under the Home Mortgage Disclosure Act 

(including the number of RHS- and FHA-guaranteed loan originations by 

lender in 2012 and the location of each lender) and RHS and FHA loanlevel data for 2010–2014 on the number of guaranteed loans originated 

by each lender. To supplement our lender interviews and gain 

perspective on mortgage lending in rural areas, we interviewed mortgage 

industry groups selected to capture a range of stakeholders in the RHS 

and FHA loan guarantee programs. These groups included the Credit 

Union National Association, the Independent Community Bankers of 

America, National Association of Mortgage Brokers, National Association 

of Realtors, and Mortgage Bankers Association. Additionally, we reviewed 

the Consumer Financial Protection Bureau and Federal Housing Finance 

Agency’s survey of recent mortgage borrowers about their experiences in 

choosing and taking out a mortgage.30 Among other things, the survey 

asked a representative sample of borrowers who obtained a mortgage in 

2013 how important a variety of mortgage terms or features (such as a 

low interest rate, low closing fees, low down payment, and low monthly 

 29Monthly costs for the RHS loan were 7 percent lower than for the FHA loan when the 

interest rates for both loans were the same (3.75 percent). When the hypothetical 

borrower paid a higher interest rate (4.0 percent) for the RHS loan than for the FHA loan, 

monthly costs for the RHS loan were 5 percent lower than for the FHA loan. In 

comparison, when the hypothetical borrower paid a lower interest rate (3.5 percent) for the 

RHS loan than for the FHA loan, the monthly costs for the RHS loan were 10 percent 

lower than for the FHA loan.

30See Consumer Financial Protection Bureau, Federal Housing Finance Agency, and the 

National Mortgage Database, A Profile of 2013 Mortgage Borrowers: Statistics from the 

National Survey of Mortgage Originations, Technical Report 16-01 (Washington, D.C.: 

May 27, 2016).
Appendix I: Objectives, Scope, and 

Methodology

Page 68 GAO-16-801 RHS Mortgage Guarantees

payment) were in their selection of a mortgage.31 The survey results were 

reported in the aggregate and by loan and demographic categories, 

including loan amount and household income. We reviewed the survey 

methodology and determined that the survey results were sufficiently 

reliable for purposes of describing the importance of decision factors 

borrowers consider when selecting a mortgage loan.

To compare the performance of RHS- and FHA-guaranteed home 

purchase loans in RHS-eligible areas, we analyzed the RHS and FHA 

loan-level data described previously. We focused on loans guaranteed in 

2010–2012 and determined their performance status at 12-month 

intervals (anniversary months) starting from the month the first payment 

was due until September 30, 2014. For this comparison, we limited the 

FHA-guaranteed loans to those obtained by borrowers with incomes 

within the RHS county-level household income limits (using borrower 

income as a proxy for household income).32 We restricted the data in this 

way to account for RHS’s household income limits and FHA’s lack of such 

limits, which resulted in FHA serving some borrowers with higher incomes 

than RHS is allowed to serve. We also limited the set of FHA-guaranteed 

loans to those for properties in census tracts where more than 95 percent 

or more of the tract was within an RHS-eligible area.33 Because the 

analysis focused on the payment status of the loans, we used the first 

month a loan payment was due (first payment month) as the starting point 

for measuring performance. The first payment month may be up to 2 

 31According to the report, borrowers are surveyed quarterly, by mail, based on data in the 

National Mortgage Database. The quarterly sample of approximately 6,000 mortgages 

represents a sampling rate of 1-in-260 from the population of new mortgage originations.

32As noted previously, the loan-level data we analyzed on FHA borrowers included 

information on borrower income but not on household income or size. For this 

comparison, we assumed that the borrower’s income was the only source of household 

income and that all households consisted of no more than four people (the more restrictive 

limit).

33For our analysis of loan performance, we used this stricter threshold (as opposed to the 

66.7 percent threshold used previously) to help ensure that our statistical model did not 

include FHA loans that may have different performance attributes by virtue of being just 

outside of RHS-eligible areas (for example, due to different house price or employment 

patterns).

Performance of RHS- and 

FHA-Guaranteed Loans
Appendix I: Objectives, Scope, and 

Methodology

Page 69 GAO-16-801 RHS Mortgage Guarantees

months after the month the loan is guaranteed.34 We classified the 

performance status of each loan guaranteed by RHS and FHA into one of 

the following payment status categories: current, prepaid, 30–89 days 

delinquent, 90 or more days delinquent or in the foreclosure process, or 

terminated with a claim.35 Due to the relatively brief period for our analysis 

of loan performance (2 and 3 years from the month of first payment), we 

did not isolate and analyze the foreclosure rate of RHS- and FHAguaranteed loans. According to the Federal Reserve Bank of 

Minneapolis, on average loans in foreclosure in 2010 took from 15 

months to 2 years to complete foreclosure, meaning that relatively few of 

the loans we analyzed would have had time to complete this process.36

We also classified loans in the last two categories as troubled and 

calculated troubled loan rates for each agency.37 We compared the actual 

performance of RHS- and FHA-guaranteed loans after 2 and 3 years from 

the date of first payment.

To compare the expected performance of RHS- and FHA-guaranteed 

loans after 2 and 3 years and to examine factors accounting for 

differences between RHS and FHA troubled loan rates, we developed a 

statistical model.38 The model primarily used FHA and RHS loan-level 

data including borrower income and credit score, loan amount, loan 

 34Therefore, to examine the performance of loans after 3 years of performance (that is, 

loans that were guaranteed in 2010–2011) we focused on loans with first payment months 

from December 2009 through October 2011. To examine the performance of loans after 2 

years of performance (that is, loans that were guaranteed in 2010–2012), we focused on 

loans with first payment months from December 2009 through October 2012.

35The data we analyzed did not have performance information for about 0.2 percent each 

of the RHS- and FHA-guaranteed loans. 

36See Kyle F. Herkenhoff and Lee E. Ohanian, “Foreclosure Delay and the U.S. Labor 

Market,” Economic Policy Paper 16-07 (Minneapolis, Minn.: May 2016). 

37Because we did not have performance information on the loans into which prepaying 

borrowers may have refinanced, we included prepayments only in the denominator of our 

calculation of troubled loan rates. As a result, we treated prepaid loans similarly to loans 

that were current or in an early stage of delinquency. This approach is consistent with the 

fact that RHS and FHA borrowers generally need to be current on their loans to use the 

RHS and FHA refinance programs and that the programs are designed to help borrowers 

lower their monthly loan payments, which may increase their ability to remain current.

38For the 3-year comparison, we used RHS and FHA loan-level data for loans guaranteed 

in 2010–2011. For the 2-year comparison, we also included RHS and FHA loan-level data 

for loans guaranteed in 2012.
Appendix I: Objectives, Scope, and 

Methodology

Page 70 GAO-16-801 RHS Mortgage Guarantees

interest rate, and DTI and LTV ratios at loan origination. The model also 

used data from other sources, including the Federal Housing Finance 

Agency House Price Index for state nonmetropolitan areas to estimate 

changes in the value of each mortgaged property and data on the 

Treasury 10-year constant maturity rate to determine the interest rate 

spread (that is, the difference between the interest rate on the loan and 

the Treasury rate for the same period). Prior research has found that 

these variables influence loan performance, including troubled loan rates. 

Other variables for which we lacked data, such as borrower employment 

status, may also influence troubled loan rates.

For RHS and FHA separately, we used logistic regressions to estimate

the relationships between relevant loan and borrower characteristics and 

economic conditions (explanatory variables) and the probability of the 

loans they guaranteed becoming troubled after 2 and 3 years. That is, we 

estimated changes in the troubled loan rate associated with variations in 

the value of the explanatory variables. These relationships are 

represented by coefficients for each variable. In general, we found that 

the coefficients were similar for both agencies and consistent with prior 

research in terms of the direction of the estimated effect.

The similarity in the separate RHS and FHA coefficients allowed us to run 

our model using a data set that included both agencies’ loans in order to 

estimate coefficients for the combined loan pool. These coefficients 

represent the statistical relationships between the explanatory variables 

and loan performance without regard to which agency provided the 

guarantee. As a result, they provided a common foundation for estimating 

and comparing how the portfolio characteristics of each agency 

influenced their troubled loan rates.

We used these coefficients to simulate 2- and 3-year troubled loan rates 

using average values of the explanatory variables. Specifically, we first 

estimated an overall expected troubled loan rate for RHS’s loan portfolio 

based on RHS-specific averages for all explanatory variables. Second, to 

isolate the impact of a particular RHS portfolio characteristic on the 

expected troubled loan rate, we used the RHS-specific average for the 

corresponding variable while holding all other variables at their average 

values for the combined RHS-FHA loan pool. We performed the same 

two steps for FHA’s loan portfolio and compared the results for RHS and 
Appendix I: Objectives, Scope, and 

Methodology

Page 71 GAO-16-801 RHS Mortgage Guarantees

FHA.39 See appendixes VI and VII for additional information on the 

statistical model and results.

We conducted this performance audit from February 2015 to September 

2016 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

 39We calculated the percent difference between the agencies’ expected troubled loan 

rates by subtracting the FHA expected troubled loan rate from the RHS expected troubled 

loan rate, dividing by the average of the FHA and RHS rates, and multiplying the quotient 

by 100.
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 72 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the results of our analysis comparing the 

characteristics of single-family home purchase loans guaranteed by the 

Rural Housing Service (RHS) and the Federal Housing Administration 

(FHA) in fiscal years 2010–2014 in RHS-eligible areas.1 We calculated 

the number and percentage of loans that fell into different categories or 

ranges of values for each borrower, loan, and property characteristic at 

loan origination by individual loan cohort and for all loan cohorts 

collectively.2

Table 4: Distribution of Borrower Credit Scores for RHS- Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 

Credit score 

2010 2011 2012 2013 2014 Total

# of 

loans 

% of 

loans 

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of

loans

# of 

loans

% of 

loans

Less than 500 728 1 406 <1 235 <1 144 <1 63 <1 1,576 <1

500–579 162 <1 71 <1 36 <1 17 <1 6 <1 292 <1

580–639 22,386 19 11,627 10 8,086 6 5,826 4 4,526 4 52,451 9

640–699 49,972 41 55,529 48 65,249 51 74,189 53 60,448 55 305,342 50

700–719 11,978 10 12,361 11 13,914 11 16,180 12 12,742 12 67,175 11

720–759 20,446 17 20,696 18 22,970 18 25,277 18 18,805 17 108,194 18

760–799 13,235 11 13,296 11 14,191 11 15,174 11 10,815 10 66,711 11

800 or more 2,182 2 2,302 2 2,443 2 2,350 2 1,558 1 10,835 2

No data available 269 <1 306 <1 391 <1 359 <1 247 <1 1,572 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

 1

We analyzed loan-level data on 30-year, fixed-rate loans, excluding those for units in 

condominium and cooperative developments. We limited the FHA-guaranteed loans to 

those for properties in census tracts that were at least 66.7 percent in RHS-eligible areas.

2

A cohort is a set of loans an agency guarantees in a fiscal year.

Appendix II: Characteristics of Home 

Purchase Loans RHS and FHA Guaranteed 

in RHS-Eligible Areas in Fiscal Years 2010–

2014
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 73 GAO-16-801 RHS Mortgage Guarantees

Table 5: Distribution of Borrower Credit Scores for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 

Credit score

2010 2011 2012 2013 2014 Total

# of loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 500 16 <1 6 <1 1 <1 0 0 0 0 23 <1

500–579 1,218 1 346 <1 183 <1 77 <1 81 <1 1,905 <1

580–639 41,624 18 22,588 13 20,906 13 15,803 10 21,370 15 122,291 14

640–699 92,136 39 72,223 42 75,297 47 87,749 54 83,108 57 410,513 47

700–719 24,128 10 17,856 10 16,878 10 18,000 11 14,690 10 91,552 10

720–759 41,415 17 30,502 18 26,279 16 24,392 15 16,120 11 138,708 16

760–799 31,260 13 22,859 13 18,178 11 15,098 9 8,321 6 95,716 11

800 or more 5,248 2 3,967 2 3,039 2 2,261 1 1,193 1 15,708 2

No data available 1,339 1 836 1 751 1 561 <1 391 <1 3,878 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

Table 6: Distribution of Payment-to-Income Ratios for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014 

Payment-to-income 

ratio (percentage)

2010 2011 2012 2013 2014 Total

# of loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

10 or less 1,577 1 1,592 1 1,641 1 1,409 1 797 1 7,016 1

>10–15 9,904 8 10,824 9 11,962 9 11,976 9 8,145 8 52,811 9

>15–20 25,058 21 24,996 21 28,664 23 30,719 22 22,920 21 132,357 22

>20–25 31,915 26 30,776 26 34,843 27 38,588 28 31,450 29 167,572 27

>25–29 23,233 19 21,301 18 23,674 19 27,194 20 23,937 22 119,339 19

>29–31 8,413 7 7,745 7 8,987 7 10,269 7 8,761 8 44,175 7

>31–35 11,543 10 10,428 9 12,480 10 14,540 10 12,081 11 61,072 10

>35–40 7,190 6 6,546 6 4,489 4 4,457 3 1,097 1 23,779 4

>40 2,459 2 2,365 2 748 1 345 <1 11 <1 5,928 1

No data available 21 <1 21 <1 27 <1 19 <1 11 <1 99 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 74 GAO-16-801 RHS Mortgage Guarantees

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The payment-to-income ratio represents the percentage of a borrower’s income that 

goes toward total mortgage debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 7: Distribution of Payment-to-Income Ratios for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Payment-to-income 

ratio (percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

10 or less 6,540 3 5,326 3 5,196 3 5,114 3 3,529 2 25,705 3

>10–15 22,724 10 19,272 11 19,139 12 19,216 12 14,553 10 94,904 11

>15–20 45,480 19 35,082 21 34,641 21 34,791 21 29,127 20 179,121 20

>20–25 52,299 22 37,358 22 35,432 22 36,217 22 32,103 22 193,409 22

>25–29 36,809 15 24,761 15 23,081 14 23,637 14 22,021 15 130,309 15

>29–31 15,383 7 10,522 6 9,556 6 9,477 6 9,256 6 54,194 6

>31–35 24,738 10 16,284 10 14,569 9 14,826 9 14,480 10 84,897 10

>35–40 19,908 8 13,121 8 11,417 7 11,781 7 11,687 8 67,914 8

>40 14,395 6 9,379 6 8,409 5 8,810 5 8,480 6 49,473 6

No data available 108 <1 78 <1 72 <1 72 <1 38 <1 368 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The payment-to-income ratio represents the percentage of a borrower’s income that 

goes toward total mortgage debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 75 GAO-16-801 RHS Mortgage Guarantees

Table 8: Distribution of Debt-Service-to-Income Ratios for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by 

Loan Cohort, Fiscal Years 2010–2014 

Debt-service-toincome ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

20 or less 4,030 3 4,314 4 4,796 4 4,702 3 3,008 3 20,850 3

>20–25 8,086 7 8,363 7 9,451 7 10,024 7 7,317 7 43,241 7

>25–30 15,430 13 15,209 13 17,210 14 19,145 14 14,837 14 81,831 13

>30–35 21,553 18 21,029 18 24,819 20 27,512 20 22,791 21 117,684 19

>35–41 33,697 28 31,630 27 35,770 28 40,175 29 34,007 31 175,279 29

>41–43 9,745 8 9,299 8 10,812 9 12,130 9 10,322 9 52,308 9

>43–50 22,995 19 21,768 19 23,700 19 25,456 18 16,892 16 110,811 18

>50 5,777 5 4,962 4 930 1 354 <1 25 <1 12,048 2

No data available 20 <1 20 <1 27 <1 18 <1 11 <1 96 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The debt-service-to-income ratio represents the percentage of a borrower’s income 

that goes toward all recurring debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 9: Distribution of Debt-Service-to-Income Ratios for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by 

Loan Cohort, Fiscal Years 2010–2014

Debt-service-toincome ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

20 or less 5,643 2 4,305 3 4,205 3 4,236 3 2,921 2 21,310 2

>20–25 11,558 5 8,548 5 8,507 5 8,544 5 6,501 5 43,658 5

>25–30 21,717 9 15,698 9 15,182 9 15,960 10 12,733 9 81,290 9

>30–35 32,560 14 23,141 14 21,895 14 22,880 14 19,720 14 120,196 14

>35–41 49,427 21 34,982 20 33,665 21 35,119 21 32,751 23 185,944 21

>41–43 18,482 8 13,144 8 12,374 8 13,354 8 13,384 9 70,738 8

>43–50 60,873 26 44,522 26 41,790 26 42,537 26 37,864 26 227,586 26

>50 37,981 16 26,756 16 23,809 15 21,236 13 19,065 13 128,847 15

No data available 143 <1 87 <1 85 <1 75 <1 335 <1 725 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 76 GAO-16-801 RHS Mortgage Guarantees

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The debt-service-to-income ratio represents the percentage of a borrower’s income 

that goes toward all recurring debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 10: Distribution of Borrower Annual Incomes for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Annual income (in 

nominal dollars)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 20,000 3,254 3 3,419 3 3,069 2 2,689 2 1,567 1 13,998 2

20,000–39,999 49,479 41 48,007 41 51,382 40 53,972 39 39,002 36 241,842 39

40,000–59,999 47,195 39 44,764 38 49,470 39 55,410 40 44,993 41 241,832 39

60,000–79,999 18,851 16 17,744 15 20,226 16 23,325 17 19,774 18 99,920 16

80,000–99,999 2,207 2 2,318 2 2,964 2 3,664 3 3,490 3 14,643 2

100,000 or more 285 <1 298 <1 371 <1 426 <1 370 <1 1,750 <1

No data available 42 <1 44 <1 33 <1 30 <1 14 <1 163 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

Table 11: Distribution of Borrower Annual Incomes for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Annual income (in 

nominal dollars)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 20,000 4,975 2 3,872 2 3,487 2 2,680 2 1,685 1 16,699 2

20,000–39,999 61,608 26 42,161 25 38,814 24 36,729 22 30,320 21 209,632 24

40,000–59,999 67,424 28 45,911 27 43,492 27 44,387 27 40,598 28 241,812 28

60,000–79,999 46,402 20 33,595 20 32,291 20 34,165 21 31,789 22 178,242 20

80,000–99,999 28,743 12 21,812 13 21,230 13 22,292 14 20,444 14 114,521 13

100,000 or more 29,183 12 23,804 14 22,167 14 23,666 14 20,424 14 119,244 14

No data available 49 <1 28 <1 31 <1 22 <1 14 <1 144 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 77 GAO-16-801 RHS Mortgage Guarantees

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

Table 12: Distribution of Borrower-Identified Race and Ethnicity for RHS-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas by Loan Cohort, Fiscal Years 2010–2014

Borrower race or 

ethnicity

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

White 103,829 86 100,159 86 110,366 87 121,071 87 94,647 87 530,072 86

Hispanic or Latino 9,366 8 9,611 8 9,811 8 10,530 8 8,292 8 47,610 8

Black or African 

American 6,543 5 5,151 4 5,375 4 5,861 4 4,684 4 27,614 5

Asian 576 <1 655 1 785 1 809 1 618 1 3,443 1

American Indian, Alaska 

Native 515 <1 445 <1 501 <1 524 <1 393 <1 2,378 <1

More than one race (nonHispanic or Latino) 253 <1 288 <1 357 <1 399 <1 330 <1 1,627 <1

Native Hawaiian or other 

Pacific Islander 231 <1 284 <1 320 <1 322 <1 246 <1 1,403 <1

Not disclosed 0 0 1 <1 0 0 0 0 0 0 1 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). For this analysis, we made the categories mutually exclusive. Percentages do not 

always sum to exactly 100 percent due to rounding.
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 78 GAO-16-801 RHS Mortgage Guarantees

Table 13: Distribution of Borrower-Identified Race and Ethnicity for FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas by Loan Cohort, Fiscal Years 2010–2014

Borrower race 

or ethnicity

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

White 184,725 78 131,753 77 124,086 77 126,769 77 109,332 75 676,665 77

Hispanic or 

Latino 23,906 10 19,517 11 19,138 12 18,494 11 17,689 12 98,744 11

Black or African 

American 11,104 5 7,287 4 7,066 4 7,632 5 7,884 5 40,973 5

Asian 2,819 1 1,914 1 1,850 1 1,905 1 1,528 1 10,016 1

American Indian, 

Alaska Native 746 <1 505 <1 490 <1 579 <1 505 <1 2,825 <1

More than one 

race (nonHispanic or 

Latino) 531 <1 360 <1 415 <1 460 <1 393 <1 2,159 <1

Native Hawaiian 

or other Pacific 

Islander 1,398 1 858 1 630 <1 548 <1 526 <1 3,960 <1

Not disclosed 13,155 6 8,989 5 7,837 5 7,554 5 7,417 5 44,952 5

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). For this analysis, we made the categories mutually exclusive. Percentages do not 

always sum to exactly 100 percent due to rounding.

Table 14: Distribution of First-Time Homebuyers for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

First-time 

homebuyer status

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

First-time 

homebuyer 104,646 86 96,785 83 109,212 86 119,180 85 93,320 86 523,143 85

Non-first-time 

homebuyer 16,438 14 19,782 17 18,296 14 20,334 15 15,890 15 90,742 15

No data available 229 <1 27 <1 7 <1 2 <1 0 0 265 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 79 GAO-16-801 RHS Mortgage Guarantees

developments). RHS and FHA generally define a first-time homebuyer as an individual who has not 

had ownership in a principal residence during the prior 3-year period. Percentages do not always sum 

to exactly 100 percent due to rounding.

Table 15: Distribution of First-Time Homebuyers for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

First-time 

homebuyer status

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

First-time 

homebuyer 171,267 72 115,262 67 112,039 69 116,716 71 108,650 75 623,934 71

Non-first-time 

homebuyer 67,117 28 55,921 33 49,473 31 47,225 29 36,624 25 256,360 29

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage;

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). RHS and FHA generally define a first-time homebuyer as an individual who has not 

had ownership in a principal residence during the prior 3-year period.

Table 16: Distribution of Loan Amounts for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Loan amount (in 

dollars)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 50,000 3,870 3 3,252 3 3,030 2 2,682 2 2,000 2 14,834 2

50,000-99,999 39,598 33 37,075 32 38,453 30 38,870 28 31,492 29 185,488 30

100,000–149,999 45,129 37 42,653 37 47,500 37 51,263 37 39,426 36 225,971 37

150,000–199,999 23,464 19 23,497 20 26,155 21 30,858 22 23,882 22 127,856 21

200,000–299,999 8,533 7 9,199 8 11,114 9 14,105 10 11,163 10 54,114 9

300,000 or more 719 1 918 1 1,263 1 1,738 1 1,247 1 5,885 1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 80 GAO-16-801 RHS Mortgage Guarantees

Table 17: Distribution of Loan Amounts for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Loan amount 

(in dollars)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 

50,000 4,858 2 3,974 2 3,458 2 2,592 2 2,197 2 17,079 2

50,000–99,999 50,396 21 37,610 22 34,753 22 31,049 19 28,004 19 181,812 21

100,000–

149,999 72,090 30 51,056 30 48,049 30 47,022 29 41,684 29 259,901 30

150,000–

199,999 53,633 23 37,819 22 37,058 23 38,811 24 35,485 24 202,806 23

200,000–

299,999 44,571 19 31,499 18 30,246 19 34,311 21 30,200 21 170,827 19

300,000 or more 12,836 5 9,225 5 7,948 5 10,156 6 7,704 5 47,869 6

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

Table 18: Distribution of Loan-to-Value Ratios for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Loan-to-value ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

80 or less 3,680 3 2,847 2 2,671 2 2,477 2 1,947 2 13,622 2

>80–85 2,820 2 2,304 2 2,387 2 2,135 2 1,636 2 11,282 2

>85–90 5,739 5 4,486 4 4,879 4 4,659 3 3,743 3 23,506 4

>90–92 3,607 3 2,784 2 3,320 3 3,256 2 2,604 2 15,571 3

>92–96.5 14,163 12 11,290 10 13,726 11 14,087 10 10,979 10 64,245 11

>96.5–98.5 12,340 10 8,887 8 12,490 10 13,014 9 10,424 10 57,155 9

>98.5–100 18,371 15 11,796 10 16,883 13 18,325 13 13,903 13 79,278 13

>100–102 37,984 31 18,335 16 39,773 31 44,808 32 35,223 32 176,123 29

More than 102 22,607 19 53,799 46 31,320 25 36,633 26 28,724 26 173,083 28

No data available 2 <1 66 <1 66 <1 122 <1 27 <1 283 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 81 GAO-16-801 RHS Mortgage Guarantees

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Loan-to-value ratios are calculated as the amount of the loan (including financed upfront guarantee fees, if any) divided by the value of the home at origination. Percentages do not 

always sum to exactly 100 percent due to rounding.

Table 19: Distribution of Loan-to-Value Ratios for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Loan-to-value ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

80 or less 11,891 5 9,820 6 7,830 5 6,255 4 5,979 4 41,775 5

>80–85 9,423 4 7,910 5 6,492 4 5,522 3 4,792 3 34,139 4

>85–90 18,796 8 15,926 9 13,674 9 11,174 7 9.766 7 69,336 8

>90–92 14,258 6 11,166 7 10,346 6 9,163 6 8.286 6 53,219 6

>92–96.5 61,653 26 54,041 32 51,944 32 44,261 27 39,075 27 250,974 29

>96.5–98.5 99,930 42 59,457 35 69,552 43 85,615 52 76,403 53 390,957 44

>98.5–100 20,398 9 11,861 7 617 <1 758 1 357 <1 33,991 4

>100–102 730 <1 317 <1 497 <1 583 <1 304 <1 2,431 <1

More than 102 1,008 <1 426 <1 393 1 464 <1 259 <1 2,550 <11

No data available 297 <1 259 <1 167 <1 146 <1 53 <1 922 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Loan-to-value ratios are calculated as the amount of the loan (including financed upfront guarantee fees, if any) divided by the value of the home at origination. Percentages do not 

always sum to exactly 100 percent due to rounding.

Table 20: Distribution of Degree of Rurality for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Degree of rurality

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Urban 40,356 33 39,913 34 45,566 36 48,943 35 36,755 34 211,533 34

Suburban 45,189 37 43,546 37 47,440 37 53,349 38 42,543 39 232,067 38

Large rural town 24,988 21 22,925 20 24,162 19 25,781 19 20,758 19 118,614 19

Small town and 

isolated rural area 10,710 9 10,166 9 10,290 8 11,378 8 9,089 8 51,633 8

Not available 70 <1 44 <1 57 <1 65 <1 65 <1 301 <1

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 82 GAO-16-801 RHS Mortgage Guarantees

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of U.S. Department of Agriculture (USDA) data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We analyzed the degree of rurality using USDA’s Rural-Urban Commuting Area 

codes, which classify all census tracts in the United States on a continuum from rural to urban based 

on daily commuting patterns and population density. Areas can be classified into four types of 

locations (urban, suburban, large rural town, and small town and isolated rural area). Percentages do 

not always sum to exactly 100 percent due to rounding.

Table 21: Distribution of Degree of Rurality for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Degree of rurality

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Urban 110,394 46 78,951 46 74,365 46 75,683 46 64,967 45 404,360 46

Suburban 87,028 37 61,820 36 58,029 36 59,899 37 54,697 38 321,473 37

Large rural town 28,959 12 21,313 13 20,360 13 20,037 12 17,888 12 108,557 12

Small town and isolated 

rural area 11,965 5 9,059 5 8,725 5 8,283 5 7,686 5 45,718 5

Not available 38 <1 40 <1 33 <1 39 <1 36 <1 186 <1

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage ; < = less than

Source: GAO analysis of U.S. Department of Agriculture (USDA) and FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We analyzed the degree of rurality using USDA’s Rural-Urban Commuting Area 

codes, which classify all census tracts in the United States on a continuum from rural to urban based 

on daily commuting patterns and population density. Areas can be classified into four types of 

locations (urban, suburban, large rural town, and small town and isolated rural area). Percentages do 

not always sum to exactly 100 percent due to rounding.

Table 22: Distribution of Census Regions for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Census region

2010 2011 2012 2013 2014 Total

# of loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Midwest 35,609 29 33,747 29 35,514 28 39,122 28 31,106 29 175,098 29

Northeast 9,253 8 10,094 9 12,145 10 14,088 10 10,900 10 56,480 9

South 56,567 47 51,755 44 57,334 45 63,222 45 49,198 45 278,076 45

West 17,387 14 18,087 16 20,252 16 20,724 15 16,226 15 92,676 15

Not applicable 2,497 2 2,911 3 2,270 2 2,360 2 1,780 2 11,818 2

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage

Source: GAO analysis of RHS loan-level data. | GAO-16-801
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 83 GAO-16-801 RHS Mortgage Guarantees

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Puerto Rico and the Island Areas (U.S. Virgin Islands, Guam, American Samoa, and 

the Commonwealth of the Northern Mariana Islands) are not part of a census region. In our analysis, 

these areas are included in “not applicable.” Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 23: Distribution of Census Regions for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan Cohort, 

Fiscal Years 2010–2014

Census 

region

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Midwest 46,153 19 32,149 19 30,073 19 30,870 19 28,296 20 167,541 19

Northeast 34,651 15 23,787 14 22,234 14 21,116 13 17,253 12 119,041 14

South 107,530 45 76,547 45 72,753 45 76,430 47 68,857 47 402,117 46

West 45,849 19 33,588 20 31,483 20 31,918 20 28,259 20 171,097 19

Not applicable 4,201 2 5,112 3 4,969 3 3,607 2 2,609 2 20,498 2

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Puerto Rico and the Island Areas (U.S. Virgin Islands, Guam, American Samoa, and 

the Commonwealth of the Northern Mariana Islands) are not part of a census region. In our analysis, 

these areas are included in “not applicable.” Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 24: Distribution of Construction Types for RHS-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Home construction 

type

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Manufactured home 897 1 631 1 573 <1 594 <1 321 <1 3,016 1

Modular or panelized 

home 717 1 669 1 618 1 729 1 482 <1 3,215 1

On-site construction 113,396 94 112,712 97 124,908 98 137,132 98 107,842 99 595,990 97

No data available 6,303 5 2,582 2 1,416 1 1,061 1 565 1 11,927 2

Total 121,313 100 116,594 100 127,515 100 139,516 100 109,210 100 614,148 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.
Appendix II: Characteristics of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 84 GAO-16-801 RHS Mortgage Guarantees

Table 25: Distribution of Construction Types for FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by Loan 

Cohort, Fiscal Years 2010–2014

Home construction 

type

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Manufactured home 14,105 6 9,755 6 9,460 6 9,488 6 9,851 7 52,659 6

On-site or unknown 

construction 224,279 94 161,428 94 152,052 94 154,453 94 135,423 93 827,635 94

Total 238,384 100 171,183 100 161,512 100 163,941 100 145,274 100 880,294 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments).
Appendix III: Characteristics of Refinance 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 85 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the results of our analysis of the characteristics 

of single-family refinance loans guaranteed by the Rural Housing Service 

(RHS) and Federal Housing Authority (FHA) in fiscal years 2010–2014 in 

RHS-eligible areas.1

RHS provided loan-level data for two refinance programs:

• refinancing of RHS direct loans to RHS-guaranteed loans and

• refinancing of existing RHS-guaranteed loans.

FHA provided data for three refinance programs:

• refinancing of existing FHA-guaranteed loans (not streamlined),2

• refinancing of existing FHA-guaranteed loans (streamlined), and

• refinancing of conventional loans to FHA-guaranteed loans.

For selected borrower and loan characteristics, we calculated the number 

of loans refinanced under each program, the percentage of loans with 

missing information for the specified characteristic, and the median value 

of the characteristic (for the 5-year period collectively).

 1

We analyzed loan-level data on 30-year, fixed-rate loans (excluding those for units in 

condominium and cooperative developments). 

2

Loans refinanced under the “streamlined” process generally require limited credit 

documentation and underwriting and do not require a new appraisal (a valuation of the 

property to be used as collateral for the loan). 

Appendix III: Characteristics of Refinance 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014
Appendix III: Characteristics of Refinance 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 86 GAO-16-801 RHS Mortgage Guarantees

Table 26: Median Value of Credit Scores, Payment-to-Income Ratios, and Debt-Service-to-Income Ratios for RHS- and FHAGuaranteed Home Refinance Loans in RHS-Eligible Areas by Refinance Program, Fiscal Years 2010–2014

Refinance 

program 

Credit score Payment-to-income ratio Debt-service-to-income ratio

Number 

of loans

% of loans 

without 

informationa Median value

Number 

of loans

% of loans 

without 

informationa Median value (percentage)

Number 

of loans

% of loans 

without 

informationa

Median 

value 

(percentage)

RHS-guaranteed refinance programs 

Refinance of 

RHS direct 

loan 404 0 702 404 0 22 404 0 31

Refinance of 

RHSguaranteed 

loan 26,757 <1 703 26,757 <1 21 26,757 <1 32

Total 27,161 <1 703 27,161 <1 21 27,161 <1 32

FHA-guaranteed refinance programs 

Refinance of 

FHAguaranteed 

loan (not 

streamlined 

process) 36,985 <1 678 36,985 <1 22 36,985 <1 40

Refinance of 

FHAguaranteed 

loan 

(streamlined 

process) 278,389 86 — 278,389 66 — 278,389 66 —

Refinance of 

conventional

loan 205,218 <1 680 205,218 <1 23 205,218 <1 41

Total 520,592 46 — 520,592 35 — 520,592 35 —

Legend: % = Percentage; — = not calculated due to limited data; < = less than

Source: GAO analysis of RHS and FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) and 

Federal Housing Administration (FHA) for refinancing single-family homes (excluding loans for units 

in condominium and cooperative developments). Percentages do not always sum to 100 percent due 

to rounding.

a

Less data were available for some RHS- and FHA-guaranteed loans refinanced under RHS and FHA 

programs because the programs do not require collection of such information.
Appendix III: Characteristics of Refinance 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2014

Page 87 GAO-16-801 RHS Mortgage Guarantees

Table 27: Median Value of Annual Borrower Incomes and Loan-to-Value Ratios for RHS- and FHA-Guaranteed Home 

Refinance Loans in RHS-Eligible Areas by Refinance Program, Fiscal Years 2010–2014 

Refinance program 

Annual income Loan-to-value ratio

Number of 

loans

% of loans 

without 

informationa Median value (in dollars)

Number of 

loans

% of loans 

without 

informationa Median value (percentage)

RHS-guaranteed refinance programs 

Refinance of RHS 

direct loan 404 <1 39,840 404 12 —

Refinance of RHSguaranteed loan 26,757 <1 50,400 26,757 21 —

Total 27,161 <1 50,160 27,161 21 —

FHA-guaranteed refinance programs 

Refinance of FHAguaranteed loan (not 

streamlined process) 36,985 0 57,528 36,985 0 87

Refinance of FHAguaranteed loan 

(streamlined process) 278,389 63 — 278,389 96 —

Refinance of 

conventional loan 205,218 <1 58,572 205,218 0 87

Total 520,592 34 — 520,592 51 —

Legend: % = Percentage; — = not calculated due to limited data; < = less than

Source: GAO analysis of RHS and FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) and 

Federal Housing Administration (FHA) for refinancing single-family homes (excluding loans for units 

in condominium and cooperative developments). Percentages do not always sum to 100 percent due 

to rounding.

a

Less data were available for some RHS- and FHA-guaranteed loans refinanced under RHS and FHA 

programs because the programs do not require collection of such information.
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 88 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the results of our analysis examining the 

characteristics of single-family home purchase loans guaranteed by the 

Federal Housing Administration (FHA) in fiscal years 2010–2014 for 

properties not in Rural Housing Service (RHS)-eligible areas.1

Approximately 75 percent (2,646,366) of the home purchase loans FHA 

guaranteed in 2010–2014 were not located in RHS-eligible areas.2 We 

calculated the number and percentage of FHA-guaranteed loans that fell 

into different categories or ranges of values for each borrower, loan, and 

property characteristic at loan origination by individual loan cohort and for 

all loan cohorts collectively.3

Table 28: Distribution of Borrower Credit Scores for FHA-Guaranteed Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014 

Credit score

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

Less than 580 2,199 <1 531 <1 201 <1 139 <1 206 <1 3,276 <1

580–639 117,578 16 57,113 11 53,090 11 36,874 8 47,556 12 312,211 12

640–699 286,183 39 218,678 43 239,346 47 261,872 54 236,651 59 1,242,730 47

700–719 76,410 10 54,953 11 55,561 11 56,617 12 44,169 11 287,710 11

720–759 136,138 18 92,438 18 86,004 17 76,153 16 47,271 12 438,004 17

760–799 103,377 14 73,205 14 59,914 12 46,388 10 23,490 6 306,374 12

800 or more 15,644 2 11,913 2 9,218 2 6,437 1 2,922 1 46,134 2

No data available 3,587 1 2,065 <1 2,052 <1 1,372 <1 851 <1 9,927 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative

developments). Percentages do not always sum to exactly 100 percent due to rounding.

 1

We analyzed loan-level data on 30-year, fixed-rate loans (excluding those for units in 

condominium and cooperative developments). 

2

For this analysis, we used the statutory definition of RHS-eligible areas. 

3

A cohort is a set of loans an agency guarantees in a fiscal year.

Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible 

Areas in Fiscal Years 2010–2014
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 89 GAO-16-801 RHS Mortgage Guarantees

Table 29: Distribution of Payment-to-Income Ratios for FHA-Guaranteed Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014 

Payment-to-income 

ratio (percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

10 or less 11,778 2 9,233 2 8,948 2 8,208 2 5,108 1 43,275 2

>10–15 39,663 5 31,615 6 32,704 7 30,860 6 20,407 5 155,249 6

>15–20 101,878 14 75,003 15 78,438 16 74,181 15 54,353 14 383,853 15

>20–25 149,080 20 102,719 20 103,866 21 99,379 21 79,516 20 534,560 20

>25–29 124,778 17 82,231 16 81,153 16 78,768 16 67,016 17 433,946 16

>29–31 57,937 8 37,955 7 36,891 7 36,164 7 31,835 8 200,782 8

>31–35 97,834 13 64,285 13 61,766 12 60,093 12 53,327 13 337,305 13

>35–40 87,036 12 58,435 11 55,277 11 53,573 11 49,363 12 303,684 12

>40 70,679 10 49,155 10 46,065 9 44,408 9 42,091 10 252,398 10

No data available 453 <1 265 <1 278 <1 218 <1 100 <1 1,314 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The payment-to-income ratio represents the percentage of a borrower’s income that 

goes toward total mortgage debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 30: Distribution of Debt-Service-to-Income Ratios for FHA-Guaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014

Debt-service-toincome ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

20 or less 12,411 2 9,104 2 9,019 2 8,689 2 5,387 1 44,610 2

>20–25 29,650 4 20,642 4 21,375 4 20,452 4 13,597 3 105,716 4

>25–30 61,540 8 41,345 8 42,359 8 41,114 9 29,722 7 216,080 8

>30–35 97,137 13 64,985 13 65,541 13 64,657 13 49,962 12 342,282 13

>35–41 155,117 21 104,564 21 105,538 21 104,795 22 89,356 22 559,370 21

>41–43 59,087 8 41,472 8 41,130 8 41,831 9 39,269 10 222,789 8

>43–50 201,913 27 143,514 28 140,982 28 136,381 28 115,284 29 738,074 28

>50 123,694 17 84,965 17 79,149 16 67,702 14 59,991 15 415,501 16

No data available 567 <1 305 <1 293 <1 231 <1 548 <1 1,944 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; > = greater than; < = less than
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 90 GAO-16-801 RHS Mortgage Guarantees

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). The debt-service-to-income ratio represents the percentage of a borrower’s income 

that goes toward all recurring debt payments. Percentages do not always sum to exactly 100 percent 

due to rounding.

Table 31: Distribution of Borrower Annual Incomes for FHA-Guaranteed Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014

Annual 

income (in 

nominal 

dollars)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

Less than 

20,000 12,773 2 9,936 2 9,621 2 7,016 1 3,945 1 43,291 2

20,000–

39,999 198,962 27 133,799 26 133,881 27 120,317 25 93,710 23 680,669 26

40,000–

59,999 220,079 30 145,345 28 146,250 29 143,279 30 121,306 30 776,259 30

60,000–

79,999 133,165 18 91,911 18 92,396 18 92,455 19 81,204 20 491,131 19

80,000–

99,999 78,741 11 55,852 11 54,508 11 55,232 11 48,048 12 292,381 11

100,000 or 

more 97,204 13 73,955 15 68,608 14 67,474 14 54,881 14 362,122 14

No data 

available 192 <1 98 <1 122 <1 79 <1 22 <1 513 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: For this analysis, we focused on 30-year, fixed-rate loans guaranteed by the Federal Housing 

Administration (FHA) for purchasing single-family homes (excluding loans for units in condominium 

and cooperative developments). Percentages do not always sum to exactly 100 percent due to 

rounding.
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 91 GAO-16-801 RHS Mortgage Guarantees

Table 32: Distribution of Borrower-Identified Race and Ethnicity for FHA-Guaranteed Home Purchase Loans for Properties Not 

Located in RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014

Borrower race 

or ethnicity

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

White 458,363 62 309,619 61 305,665 61 292,828 60 223,424 55 1,589,899 60

Hispanic or 

Latino 120,667 16 91,758 18 94,466 19 92,553 19 88,480 22 487,924 18

Black or African 

American 80,538 11 54,046 11 53,048 11 51,879 11 50,425 13 289,936 11

Asian 25,335 3 17,964 4 18,186 4 17,313 4 13,751 3 92,549 4

American Indian, 

Alaska Native 2,322 <1 1,471 <1 1,307 <1 1,176 <1 1,080 <1 7,356 <1

More than one 

race (nonHispanic or 

Latino) 2,306 <1 1,563 <1 1,740 <1 1,757 <1 1,549 <1 8,915 <1

Native Hawaiian 

or other Pacific 

Islander 4,999 1 3,099 1 2,602 1 2,223 1 1,950 1 14,873 1

Not disclosed 46,586 6 31,376 6 28,372 6 26,123 5 22,457 6 154,914 6

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: For this analysis, we focused on 30-year, fixed-rate loans guaranteed by the Federal Housing 

Administration (FHA) for purchasing single-family homes (excluding loans for units in condominium 

and cooperative developments). For this analysis, we made the categories mutually exclusive. 

Percentages do not always sum to exactly 100 percent due to rounding.

Table 33: Distribution of First-time Homebuyers for FHA-Guaranteed Home Purchase Loans for Properties Not Located in 

RHS-Eligible Areas by Loan Cohort, Fiscal Years 2010–2014

First-time 

homebuyer 

status

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

First-time 

homebuyer 604,014 82 398,042 78 407,019 81 395,668 81 337,864 84 2,142,607 81

Non-firsttime 

homebuyer 137,102 19 112,854 22 98,367 20 90,184 19 65,252 16 503,759 19

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 92 GAO-16-801 RHS Mortgage Guarantees

developments). FHA generally defines a first-time homebuyer as an individual who has had not 

ownership in a principal residence during the prior 3-year period. Percentages do not always sum to 

exactly 100 percent due to rounding.

Table 34: Distribution of Loan Amounts for FHA-Guaranteed Home Purchase Loans for Properties Not Located in RHSEligible Areas by Loan Cohort, Fiscal Years 2010–2014

Loan amount 

(In dollars)

2010 2011 2012 2013 2014 TOTAL

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of

loans

% of 

loans

Less than 

50,000 10,286 1 8,441 2 7,992 2 5,784 1 4,491 1 36,994 1

50,000–99,999 137,361 19 100,152 20 98,497 20 80,849 17 65,117 16 481,976 18

100,000–

149,999 219,368 30 146,519 29 148,096 29 137,833 28 114,991 29 766,807 29

150,000–

199,999 158,409 21 106,454 21 106,986 21 106,925 22 90,263 22 569,037 22

200,000–

299,999 144,763 20 98,151 19 97,424 19 102,505 21 87,573 22 530,416 20

300,000 or more 70,929 10 51,179 10 46,391 9 51,956 11 40,681 10 261,136 10

TOTAL 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: For this analysis, we focused on 30-year, fixed-rate loans guaranteed by the Federal Housing 

Administration (FHA) for purchasing single-family homes (excluding loans for units in condominium 

and cooperative developments). Percentages do not always sum to exactly 100 percent due to 

rounding.
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 93 GAO-16-801 RHS Mortgage Guarantees

Table 35: Distribution of Loan-to-Value Ratios for FHA-Guaranteed Home Purchase Loans for Properties Not Located in RHSEligible Areas by Loan Cohort, Fiscal Years 2010–2014

Loan-tovalue ratio 

(percentage)

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

80 or less 24,422 3 19,552 4 15,241 3 13,140 3 12,934 3 85,289 3

>80–85 21,248 3 17,381 3 13,990 3 11,613 2 9,897 3 74,129 3

>85–90 46,774 6 38,585 8 32,544 6 25,290 5 20,762 5 163,955 6

>90–92 39,537 5 30,849 6 27,673 6 22,621 5 19,744 5 140,424 5

>92–96.5 178,006 24 156,257 31 154,756 31 116,961 24 97,338 24 703,318 27

>96.5–98.5 357,616 48 206,504 40 255,950 51 290,750 60 239,794 60 1,350,614 51

>98.5–100 66,508 9 38,764 8 1,792 <1 2,136 <1 926 <1 110,126 4

>100–102 2,464 <1 982 <1 1,635 <1 1,674 <1 908 <1 7,663 <1

>102 3,718 1 1,341 <1 1,333 <1 1,352 <1 676 <1 8,420 <1

No data 

available 823 <1 681 <1 472 <1 315 <1 137 <1 2,428 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; > = greater than; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Loan-to-value ratios are calculated as the amount of the loan (including financed upfront guarantee fees, if any) divided by the value of the home at origination. Percentages do not 

always sum to exactly 100 percent due to rounding.

Table 36: Distribution of Degree of Rurality for FHA-Guaranteed Home Purchase Loans for Properties Not Located in RHSEligible Areas by Loan Cohort, Fiscal Years 2010–2014

Degree of 

rurality

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

Urban 714,773 96 493,024 97 487,413 96 467,614 96 387,583 96 2,550,407 96

Suburban 18,100 2 12,447 2 12,700 3 13,132 3 11,161 3 67,540 3

Large rural 

town 8,226 1 5,413 1 5,268 1 5,090 1 4,298 1 28,295 1

Small town 

and 

isolated 

rural area 14 <1 10 <1 5 <1 15 <1 64 <1 108 <1

Not 

available 3 <1 2 <1 0 0 1 <1 10 <1 16 <1

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; < = less than
Appendix IV: Characteristics of Home 

Purchase Loans FHA Guaranteed for 

Properties Not Located in RHS-Eligible Areas 

in Fiscal Years 2010–2014

Page 94 GAO-16-801 RHS Mortgage Guarantees

Source: GAO analysis of RHS loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Rural Housing Service (RHS) for 

purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We analyzed performance by degree of rurality using USDA’s Rural-Urban 

Commuting Area codes, which classify all census tracts in the United States on a continuum from 

rural to urban based on daily commuting patterns and population density. Areas can be classified into 

four types of locations (urban, suburban, large rural town, and small town and isolated rural area). 

Percentages do not always sum to exactly 100 percent due to rounding.

Table 37: Distribution of Census Regions for FHA-Guaranteed Home Purchase Loans for Properties Not Located in RHSEligible Areas by Loan Cohort, Fiscal Years 2010–2014 

Census region

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

Midwest 157,202 21 101,833 20 104,012 21 104,896 22 88,143 22 556,086 21

Northeast 93,403 13 62,835 12 61,683 12 59,463 12 47,013 12 324,397 12

South 274,598 37 185,423 36 184,167 36 182,720 38 153,290 38 980,198 37

West 215,913 29 160,805 32 155,524 31 138,773 29 114,670 28 785,685 30

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.

Table 38: Distribution of Construction Types for FHA-Guaranteed Home Purchase Loans for Properties Not Located in RHSEligible Areas by Loan Cohort, Fiscal Years 2010–2014

Home construction 

type

2010 2011 2012 2013 2014 Total

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans

# of 

loans

% of 

loans # of loans

% of 

loans

Manufactured home 2,941 <1 1,890 <1 2,231 <1 2,124 <1 2,219 <1 11,405 <1

On-site or unknown 

construction 738,175 99.6 509,006 99.6 503,155 99.6 483,728 99.6 400,897 99.4 2,634,961 99.6

Total 741,116 100 510,896 100 505,386 100 485,852 100 403,116 100 2,646,366 100

Legend: # = Number; % = Percentage; < = less than

Source: GAO analysis of FHA loan-level data. | GAO-16-801

Note: Data are for 30-year, fixed-rate loans guaranteed by the Federal Housing Administration (FHA) 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). Percentages do not always sum to exactly 100 percent due to rounding.
Appendix V: Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2012

Page 95 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the results of our analysis comparing the 

performance of single-family home purchase loans guaranteed by the 

Rural Housing Service (RHS) and the Federal Housing Administration 

(FHA) in fiscal years 2010–2012 in RHS-eligible areas after 2 and 3 years 

of performance.1 We analyzed performance for all loans and by the 

degree of rurality of the mortgaged property using the Department of 

Agriculture’s (USDA) Rural-Urban Commuting Areas classification 

system.2

 1

We analyzed loan-level data on the performance of 30-year, fixed-rate loans (excluding 

those for units in condominium and cooperative developments). For the purpose of 

comparing performance, we limited the FHA-guaranteed loans to those for properties in 

census tracts that were at least 95 percent in RHS-eligible areas. For our analysis of loan 

performance, we used this stricter threshold to help ensure that our statistical model did 

not include FHA loans that may have different performance attributes by virtue of being 

just outside of RHS-eligible areas (for example, due to different house price or 

employment patterns). We also limited the analysis to borrowers with incomes within the 

county-level household income limits set by RHS. We restricted the data in this way to 

account for the absence of FHA limits on borrower household income, which resulted in 

FHA serving some borrowers with higher incomes than RHS is allowed to serve. Because 

the analysis focuses on the payment status of the loans, we used the first payment month 

as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of 

loans after 2 years of performance (that is, loans that were guaranteed in fiscal years 

2010–2012), we focused on loans with first payment months from December 2009 through 

October 2012. Similarly, to examine the performance of loans after 3 years of 

performance (loans guaranteed in fiscal years 2010–2011), we focused on loans with first 

payment months from December 2009 through October 2011.

2

USDA’s Rural-Urban Commuting Area codes classify all census tracts in the United 

States on a continuum from rural to urban based on daily commuting patterns and 

population density. Areas can be classified into four types of locations: urban (adjoining 

census tracts in built-up areas, with a total population of 50,000 or more that correspond 

to the U.S. Census Bureau’s urbanized areas); suburban (areas with high commuting flow 

to urban areas and all areas where 30–49 percent of the population commute to urban 

areas for work); large rural town (towns with populations between 10,000 and 49,000 and 

surrounding rural areas where 10 percent or more of the population commutes to the town 

and 10 percent or more of the population commutes to an urban area for work); and small 

town and isolated rural area (towns with populations of less than 10,000 and their 

surrounding commuter areas and other isolated rural areas that are more than 1 hour 

driving distance to the nearest urban area).

Appendix V: Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2012
Appendix V: Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2012

Page 96 GAO-16-801 RHS Mortgage Guarantees

Table 39: Performance Status after 2 Years of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2012

Loan performance status

RHS FHA

Number 

of loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Current 261,022 86.9 246,209 83.1

Prepaid 9,624 3.2 23,252 7.9

30-89 days delinquent 18,116 6.0 15,142 5.1

Troubled 11,514 3.8 11,538 3.9

90 or more days delinquent or in 

the foreclosure process 9,818 3.3 10,667 3.6

Terminated with a claim 1,696 0.6 871 0.3

Source: GAO analysis of RHS and FHA loan-level data. | GAO-16-801

Note: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by the Rural 

Housing Service (RHS) and Federal Housing Administration (FHA) for purchasing single-family 

homes (excluding loans for units in condominium and cooperative developments). We limited the set 

of FHA-guaranteed loans to those for properties in census tracts that were at least 95 percent in 

RHS-eligible areas and to borrowers with incomes within the county-level household income limits set 

by RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of loans that 

were guaranteed in fiscal years 2010–2012, we focused on loans with first payment months from 

December 2009 through October 2012.

Table 40: Performance Status after 3 Years of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011

Loan performance status

RHS FHA

Number 

of loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Current 145,486 77.6 147,891 72.7

Prepaid 16,465 8.8 32,479 16.0

30-89 days delinquent 12,735 6.8 10,985 5.4

Troubled 12,781 6.8 11,964 5.9

90 or more days delinquent or in 

the foreclosure process 8,623 4.6 9,599 4.7

Terminated with a claim 4,148 2.2 2,365 1.2

Source: GAO analysis of RHS and FHA loan-level data. | GAO-16-801

Note: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by the Rural 

Housing Service (RHS) and Federal Housing Administration (FHA) for purchasing single-family 

homes (excluding loans for units in condominium and cooperative developments). We limited the set 

of FHA-guaranteed loans to those for properties in census tracts that were at least 95 percent in 

RHS-eligible areas and to borrowers with incomes within the county-level household income limits set 

by RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of loans that 
Appendix V: Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2012

Page 97 GAO-16-801 RHS Mortgage Guarantees

were guaranteed in fiscal years 2010–2011, we focused on loans with first payment months from 

December 2009 through October 2011.

Table 41: Performance Status after 2 Years of RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by 

Degree of Rurality, Fiscal Years 2010–2012 

Loan performance 

status

Urban Suburban Large rural town

Small town and isolated 

rural area

Number 

of loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

RHS

Current 75,348 86.8 103,866 86.4 56,870 87.7 24,938 87.9

Prepaid 2,534 2.9 3,847 3.2 2,217 3.4 1,026 3.6

30-89 days delinquent 5,442 6.3 7,658 6.4 3,595 5.5 1,421 5.0

Troubled 3,522 4.1 4,819 4.0 2,197 3.4 976 3.4

90 or more days 

delinquent or in the 

foreclosure process 3,106 3.6 4,121 3.4 1,806 2.8 785 2.8

Terminated with a 

claim 416 0.5 698 0.6 391 0.6 191 0.7

FHA

Current 90,010 82.8 101,813 82.8 37,608 84.4 16,778 84.3

Prepaid 8,769 8.1 9,564 7.8 3,322 7.5 1,597 8.0

30-89 days delinquent 5,629 5.2 6,580 5.4 2,080 4.7 853 4.3

Troubled 4,341 4.0 4,990 4.1 1,535 3.5 672 3.4

90 or more days 

delinquent or in the 

foreclosure process 4,074 3.8 4,584 3.7 1,401 3.2 608 3.1

Terminated with a 

claim 267 0.3 406 0.3 134 0.3 64 0.3

Source: GAO analysis of U.S. Department of Agriculture (USDA) and FHA loan-level data. | GAO-16-801

Note: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by the Rural 

Housing Service (RHS) and Federal Housing Administration (FHA) for purchasing single-family 

homes (excluding loans for units in condominium and cooperative developments). We limited the set 

of FHA-guaranteed loans to those for properties in census tracts that were at least 95 percent in 

RHS-eligible areas and to borrowers with incomes within the county-level household income limits set 

by RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of loans that 

were guaranteed in fiscal years 2010–2012, we focused on loans with first payment months from 

December 2009 through October 2012. We analyzed performance by degree of rurality using USDA’s 

Rural-Urban Commuting Area codes, which classify all census tracts in the United States on a 

continuum from rural to urban based on daily commuting patterns and population density. Areas can 

be classified into four types of locations (urban, suburban, large rural town, and small town and 

isolated rural area).
Appendix V: Performance of Home Purchase 

Loans RHS and FHA Guaranteed in RHSEligible Areas in Fiscal Years 2010–2012

Page 98 GAO-16-801 RHS Mortgage Guarantees

Table 42: Performance Status after 3 Years of RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas by 

Degree of Rurality Fiscal Years 2010–2011 

Loan performance status

Urban Suburban Large rural town

Small town and 

isolated rural area

Number of 

loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

Number of 

loans

Percentage 

of loans

RHS

Current 41,219 77.9 57,524 76.7 32,502 78.4 14,241 78.6

Prepaid 4,283 8.1 6,645 8.9 3,847 9.3 1,690 9.3

30-89 days delinquent 3,717 7.0 5,354 7.1 2,578 6.2 1,086 6.0

Troubled 3,679 7.0 5,445 7.3 2,553 6.2 1,104 6.1

90 or more days 

delinquent or in the 

foreclosure process 2,652 5.0 3,688 4.9 1,624 3.9 659 3.6

Terminated with a claim 1,027 1.9 1,757 2.3 929 2.2 445 2.5

FHA

Current 54,230 72.2 61,285 72.5 22,428 74.2 9,948 73.9

Prepaid 12,496 16.6 13,231 15.7 4,632 15.3 2,120 15.8

30-89 days delinquent 3,913 5.2 4,863 5.8 1,523 5.0 686 5.1

Troubled 4,491 6.0 5,121 6.1 1,647 5.5 705 5.2

90 or more days 

delinquent or in the 

foreclosure process 3,716 5.0 4,060 4.8 1,268 4.2 555 4.1

Terminated with a claim 775 1.0 1,061 1.3 379 1.3 150 1.1

Source: GAO analysis of U.S. Department of Agriculture (USDA) and FHA loan-level data. | GAO-16-801

Note: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by the Rural 

Housing Service (RHS) and Federal Housing Administration (FHA) for purchasing single-family 

homes (excluding loans for units in condominium and cooperative developments). We limited the set 

of FHA-guaranteed loans to those for properties in census tracts that were at least 95 percent in 

RHS-eligible areas and to borrowers with incomes within the county-level household income limits set 

by RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of loans that 

were guaranteed in fiscal years 2010–2011, we focused on loans with first payment months from 

December 2009 through October 2011. We analyzed performance by degree of rurality using USDA’s 

Rural-Urban Commuting Area codes, which classify all census tracts in the United States on a 

continuum from rural to urban based on daily commuting patterns and population density. Areas can 

be classified into four types of locations (urban, suburban, large rural town, and small town and 

isolated rural area).
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 99 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the statistical model we developed to analyze 

how mortgage loans recently guaranteed under the Section 502 singlefamily loan guarantee program, administered by the Department of 

Agriculture’s (USDA) Rural Housing Service (RHS), have performed over 

time and what factors explain performance empirically.1 We provide a 

comparison of RHS loan performance to that of single-family loans 

guaranteed by the Federal Housing Administration (FHA) through its 

Section 203(b) program.

Our fundamental approach was to define an individual loan’s performance 

in terms of its status as observed in a particular anniversary month. 

Status is a measure of whether a loan is current at a particular time, or, if 

not, a measure of its delinquency or an indication of its termination. Given 

knowledge of a loan’s month of first payment, we can define an 

anniversary month as the month of any particular scheduled payment, 

such as the 24th or 36th payment month. A loan’s anniversary status is 

then simply a snapshot of its status in that month.

Given observations of anniversary month status, we developed binary 

measures of loan performance in that month: troubled (at least 90 days 

delinquent, in the foreclosure process, or terminated with a claim) on the 

one hand or nontroubled (current, 30–89 days delinquent, or prepaid) on 

the other. We then used logistic regressions to estimate the effects of 

various factors that are understood to influence loan performance on this 

binary measure. The underlying variation in the values of these 

explanatory variables across a large set of loans permits us to estimate 

the effects of these factors on loan performance and to discuss results in 

terms of changes in expected probabilities of troubled performance.

To undertake our analysis, we obtained loan-level data from RHS and 

FHA. The agencies provided us with information for loans guaranteed in 

fiscal years 2010–2014.2 Specifically, we obtained information on 

6,181,365 FHA loans and 687,564 RHS loans, although we analyzed only 

 1

As a basic matter, loans are said to be performing if borrowers are making regularly 

scheduled payments of principal and interest.

2

We are focusing on this specific period for purposes of this review and do not claim that 

the performance during this particular period reflects performance of RHS or FHA loans 

during prior or future periods.

Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and 

FHA
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 100 GAO-16-801 RHS Mortgage Guarantees

fixed-rate loans with a 30-year term for home purchases and, given the 

requirements of the anniversary-month approach, could not include every 

loan record in the statistical analysis. The agencies provided us with two 

types of information for each loan: static and performance. In general 

terms, static information describes loan and borrower characteristics at 

the time of loan origination, such as the loan amount and the borrower’s 

credit score. Performance, or history, files contain information that 

includes a loan’s status in each month (for example, current or 30 days 

delinquent). The performance information for each loan in our data set 

covers performance from loan origination through September 2014, the 

last month of fiscal year 2014. Thus, we have approximately 5 years of 

observed performance for the earliest loans in our data, but only a few 

months for the most recent loans in our data. The month of first mortgage 

payment was not itself a variable in the data we received, but both 

agencies provided us with guidance to identify the month of first payment 

using information on other related date fields.

We included a variety of loan, borrower, and other characteristics as 

explanatory factors in our statistical analyses of mortgage performance. 

Because of our focus on comparing RHS and FHA loan performance, we 

developed a modeling approach that would allow us to estimate the 

effects of a set of explanatory variables separately for RHS and FHA 

loans as well as pooled together. To accomplish this, we needed the 

same set of explanatory factors for RHS and FHA loans. Information 

describing key loan and borrower characteristics was available in both the 

RHS and FHA data. Key static information at loan origination includes 

borrower income, credit score, loan-to-value (LTV) ratio, loan amount, 

debt-service-to-income (DTI) ratio, mortgage interest rate, and an 

indicator for whether the borrower was a first-time homebuyer. These 

characteristics are associated with loan performance, as follows.

• Borrowers with higher credit scores are less likely to have missed 

payments than borrowers with lower credit scores.

• Equity, which is defined as the value of the property minus the 

balance of the mortgage, is associated with better loan performance. 

The LTV ratio measures initial equity; larger down payments at loan 

origination are associated with better loan performance.

Modeling Considerations

Explanatory Variables
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 101 GAO-16-801 RHS Mortgage Guarantees

• Larger loan amounts require larger payments, which can put more 

financial stress on households struggling to fulfill various financial 

commitments.

• DTI ratio is a measure of how stretched a household may be to make 

scheduled mortgage and other debt payments.

• Higher interest rates are associated with larger payments, and a 

mortgage rate with a large spread over a reference rate may 

represent the lender’s assessment that the borrower presents higher 

risk of troubled loan performance. Rather than incorporating the 

mortgage interest rate directly, we calculate the spread of the 

mortgage rate over the constant maturity 10-year Treasury rate in the 

month of loan origination.

• First-time homebuyer status can be a risk factor, potentially reflecting 

a new homeowner’s limited experience with the risks and costs of 

homeownership.

A borrower can build equity over time if housing values appreciate or by 

paying down their mortgage balance. We used data from a Federal 

Housing Finance Agency house price index to develop a house price 

appreciation measure, using state-level indexes of house prices for the 

nonmetropolitan portions of each state (or a neighboring state in three

instances) over the specific interval linking a loan’s origination to a 

specific payment anniversary. We also included a set of census division 

dummy variables, a set of first payment quarter dummy variables, and a 

set of “community type” dummy variables based on USDA’s Rural-Urban 

Commuting Area code construct.3 These dummy variables may help 

control for other factors not directly measured by the other explanatory 

factors listed, including any that may have varied by region of the country, 

time of loan origination, or community type.

We also included information for RHS borrowers on the amount of liquid 

assets available to the borrower at loan origination. This permitted us to 

explore the effects of a financial cushion at the time of loan origination for 

 3

Rural-Urban Commuting Area codes are census-tract-based measures developed by the 

Economic Research Service of USDA and U.S. Health Resources and Services 

Administration. Census tracts are placed into community-type categories based on 

population density, urbanization, and commuting patterns.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 102 GAO-16-801 RHS Mortgage Guarantees

RHS loans, but not for FHA loans separately or for the model using RHS 

and FHA data pooled together.

To present an appropriate comparison group of FHA loans, we 

considered other issues related to RHS program features so that we 

could exclude FHA loans that would not qualify for the RHS program. 

First, RHS has a rural focus, and its loans are available only in specific 

mapped (RHS-eligible) areas. FHA loan availability is not restricted by 

geography. To avoid comparing RHS loans to FHA loans outside of RHSeligible areas, which may perform differently from loans in RHS-eligible 

areas, we excluded from our analysis FHA (and RHS) loans in census 

tracts for which less than 95 percent of the tract’s land area is in an RHSeligible area. As shown in table 43, this excluded most FHA loans but 

relatively few RHS loans.4

Table 43: Number and Percentage of Home Purchase Loans RHS and FHA 

Guaranteed in Fiscal Years 2010–2011 and RHS Program Eligibility as Measured by 

Census Tract Land Area 

Share of census tract land area 

that is RHS-eligible 

Rural Housing Service 

(RHS)-guaranteed 

loans

Federal Housing 

Administration (FHA)-

guaranteed loans

Number Percentage Number Percentage

At least 95 percent of area 187,467 87.3 203,319 19.4

Between 5 and 95 percent of area 21,888 10.2 111,558 10.6

Less than 5 percent of area 5,435 2.5 734,758 70.0

Source: GAO analysis of U.S. Department of Agriculture and FHA data. | GAO-16-801

Second, to qualify for an RHS loan, a borrower’s household income may 

not exceed 115 percent of the area median income, a threshold that 

varies across the country and over time. FHA borrowers are not subject to 

income restrictions. Thus, there will be FHA borrowers with incomes 

exceeding the RHS program limits in RHS-eligible areas. To avoid 

comparing RHS loans to FHA loans that went to higher-income 

borrowers, we excluded borrowers with incomes that exceeded the RHS 

 4

We used the statutory definition of RHS-eligible areas in place as of 2014. Because the 

definition changes periodically, approximately 5 percent of the loans RHS guaranteed in 

2010–2014 were not located in the updated RHS-eligible areas.

RHS Program Considerations 

and Comparable FHA Loans
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 103 GAO-16-801 RHS Mortgage Guarantees

program limits.5 For instance, the borrowers who received the 203,319 

FHA loans in table 43 that were made in RHS-eligible areas also had 

incomes that met the RHS program limits. The number of FHA loans in 

RHS-eligible areas without regard to borrower income limits was 

276,933.6 We also present results for a subset of loans that are in 

communities in RHS-eligible areas considered to be the most rural, as 

defined using the Rural-Urban Commuting Area codes.

We faced a trade-off between the number of loans we could include in the 

statistical analysis and the degree of loan seasoning we could select. 

September 2014 is the last month for which we could determine status for 

any loan, and the earliest loans in our data set were originated in the 

beginning of fiscal year 2010. As a general approximation, no loan 

originated after fiscal year 2011 will have a 36-month (3-year) anniversary 

by the end of fiscal year 2014. In contrast, all loans originated before 

fiscal year 2014 will have a 12-month (1-year) history available by the end

of fiscal year 2014. Typically, relatively few loans exhibit troubled 

performance early in their history (for instance, at their 1-year 

anniversary). Thus, more seasoned loans are likely to provide a better 

indicator of the ultimate performance of a group of loans. Figure 18 shows 

the relationship between the numbers of loans that would be available for 

our analysis given the selection of alternative anniversary periods. For 

illustration, the number of loans refers to the number of loans that would 

have the requisite history given a choice of anniversary month. 

Performance of these loans is defined in terms of the share of loans that 

are troubled. Less than 1.5 percent of loans show troubled performance 

at 1 year, while more than 6 percent of loans show troubled performance 

by 3 years.

 5

As a sensitivity analysis, we present results in which we do not restrict incomes.

6

Applying the same restriction to RHS loans resulted in less than a 2 percent reduction in 

the number of loans.

Selection of Anniversary Month 

and Performance Status
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 104 GAO-16-801 RHS Mortgage Guarantees

Figure 18: Relationship between the Number of Seasoned RHS- and FHAGuaranteed Home Purchase Loans and Troubled Loan Rates

We chose to measure status as of the 3-year anniversary period to model 

loan performance, although we do present some results in which we use 

the 2-year anniversary period.

In terms of functional form, we express each continuous variable as a 

series of dummy variables that exhaust the continuous variable’s range. 

For example, the borrower credit score range was split into nine 

dummies, most containing 20-point portions and others containing 40-

Functional Form
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 105 GAO-16-801 RHS Mortgage Guarantees

point portions of the 850-point credit score range.7 This permitted 

flexibility in determining the effects of changes in the value of an 

explanatory factor on changes in performance, and for comparing the 

effects as estimated on the set of RHS loans to the effects as estimated 

on the set of FHA loans. We used this feature to trace the relationship 

between changes in an explanatory factor across its range and the 

expected probability of troubled performance.

We provide a table of mean values for this specification later, but table 44 

presents information on the distribution of these variables in a more 

conventional form.8 These values are for the specification using a 3-year 

anniversary period, loans in the RHS-eligible areas, and borrowers with 

incomes meeting the RHS program limits.

 7

Specifically in the case of credit scores, the range dummies are less than 620; greater 

than or equal to 620 but less than 640; greater than or equal to 640 but less than 660; 

greater than or equal to 660 but less than 680; greater than or equal to 680 but less than 

700; greater than or equal to 700 but less than 720; greater than or equal to 720 but less 

than 760; greater than or equal to 760 but less than 800; and 800 or greater. For instance, 

if a borrower had a credit score of 690 at the time of loan origination, the value of the 

dummy variable indicating credit scores ranging from 680 to (less than) 700 would take on 

a value of 1, while all other credit score categorical variables would take on a value of 0.

8

See appendix VII for additional information. 
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 106 GAO-16-801 RHS Mortgage Guarantees

Table 44: Distribution of Values of Explanatory Variables for RHS- and FHAGuaranteed Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011

Variable name Agency

Values

25th 

percentile Median

75th 

percentile Mean

Debt-service-toincome ratio

(percentage)

RHS 30.6 37.0 42.5 36.5

FHA 34.6 41.8 47.8 40.8

Credit score

RHS 654 689 734 692.7

FHA 650 685 734 693.3

First-time homebuyer

RHS 1 1 1 0.85

FHA 1 1 1 0.76

House price 

appreciation 

(percentage)

RHS -3.00 0.70 3.80 0.24

FHA -4.30 -0.50 3.20 -0.37

Income

RHS 34,707 44,929 57,870 46,792

FHA 36,713 49,392 64,274 50,771

Loan amount

RHS 90,144 125,255 161,664 130,747

FHA 95,014 134,480 178,378 144,007

Loan-to-value ratio 

(percentage)

RHS 97.0 100.6 102.0 98.3

FHA 96.5 96.5 96.5 95.4

Interest rate spread 

(percentage)

RHS 1.52 1.79 2.10 1.82

FHA 1.50 1.79 2.08 1.80

Source: GAO analysis of data from Rural Housing Service (RHS), Federal Housing Administration (FHA), Federal Housing Finance 

Agency, and Department of the Treasury. | GAO-16-801

Notably, and as discussed elsewhere in this report, the distributions of 

some key characteristics are quite similar between the two sets of 

loans—particularly credit score and interest rate spread values. RHS 

borrowers had lower incomes, smaller loan amounts, and lower DTI 

ratios.9 House price appreciation was slightly more favorable for RHS 

than for FHA. A greater share of RHS borrowers were first-time 

homebuyers.

 9

We adjusted dollar-denominated explanatory variables (loan amount and income) to late 

2014 values using the Bureau of Economic Analysis’ Core Personal Consumption 

Expenditures price index. According to the Bureau, this index measures the prices paid by 

consumers for goods and services without the volatility caused by movements in food and 

energy prices to reveal underlying inflation trends.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 107 GAO-16-801 RHS Mortgage Guarantees

Both the RHS and FHA programs feature low or no down payments. 

However, the programs have different down-payment requirements, 

which affect the distribution of LTV ratios. FHA loans are concentrated at 

an LTV value of 96.5 percent, while many RHS loan amounts exceed the 

value of the property at loan origination—that is, have an LTV ratio 

exceeding 100 percent. The dummy variable construct helps to model 

LTV effects given the skewed distribution of values.

We developed two sets of dummy variables to capture LTV effects: one 

with three categories in which the top category includes all loans with LTV 

values at or above 96, and the second with four categories in which the 

top category includes all loans with LTV values at or above 100 and the 

next-to-top category includes LTV values at or above 96 but less than 

100. Most loans for both agencies exceed an LTV value of 96, but the

three-category model does not distinguish a value of 102 from a value of 

98. The four-category model makes this distinction, but given the nature 

of the two programs, almost all of the loans that have LTV values 

exceeding 100 are RHS loans.

The model includes only fixed-rate loans with 30-year terms for home 

purchases.10 In addition, we excluded loans for units in condominiums 

and cooperative developments; observations with missing or extreme 

values of explanatory variables; observations for which certain date 

values seem inappropriate—for example, mortgages that appear to 

terminate before they originate; and observations for which we could not 

determine an unambiguous measure of the performance status.11

We compared the performance of RHS loans to that of FHA loans by first 

examining agency-specific model results. We present a series of charts 

that support the view that the two agencies share a similar loan 

performance model structure. We then used the pooled set of loans to 

calculate the expected probability of troubled loan performance 

represented by loans with particular values of the explanatory 

characteristics. In particular, we compared the predicted performance of a 

loan with average RHS characteristics to a loan with average FHA 

 10RHS does not guarantee loans with shorter terms or adjustable interest rates.

11FHA does not guarantee loans for cooperatives and guaranteed few loans for 

condominiums under its 203(b) program in 2010–2012.

Performance Comparison 

Using Agency-Specific 

Model Results
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 108 GAO-16-801 RHS Mortgage Guarantees

characteristics for particular characteristics of interest. Our assumption 

that loan performance for the two programs could be evaluated using a 

similar model structure is also supported by the fact that the loan 

underwriting processes for the two programs share common elements.

We present our primary results for a model specification in which we

• select an anniversary duration of 3 years;

• classify our binary measure of loan performance so that troubled 

loans are those with anniversary month status of 90 days delinquent 

or worse (including loans in foreclosure or terminated with a claim);

• approximate RHS program income requirements by imposing 

borrower household income limits;

• restrict property locations to those in census tracts with at least 95 

percent of land area in RHS-eligible areas; and

• select a four-category LTV ratio dummy variable structure.

We also present some alternative specifications to highlight the sensitivity 

of various factors on the results (see tables 45–49 in app. VII for 

additional information).

In general, our estimates suggest that across all samples and 

specifications, certain consistent patterns are present for RHS and FHA 

borrowers. At the same time, there are some differences. For instance, 

increases in borrower credit scores decrease the expected probability of a 

loan being troubled by the 3-year anniversary, and there are dramatic 

declines as credit scores increase from the lower to the higher portions of 

the credit score range for both RHS and FHA loans (see fig. 19). 

However, at the lower portions of the range, RHS loans have a higher 

probability of being troubled, holding other factors constant, than FHA 

loans. But in both cases these probabilities decrease rapidly throughout 

the credit score range and converge by the high end of the range.12

Differences between RHS and FHA estimated coefficients are statistically 

significant except at the high end of the credit score range, suggesting 

that loans to RHS borrowers with low credit scores are somewhat more 

 12In both the RHS and FHA estimates, the difference in probability in moving from the 

omitted category (credit scores from 760 to 799) were not statistically different from those 

in the category with credit scores above 800. 
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 109 GAO-16-801 RHS Mortgage Guarantees

likely to perform worse, other factors held constant, than loans to FHA 

borrowers with low credit scores.

Figure 19: Relationship between Borrower Credit Score and Troubled Loan 

Performance after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2011

Increases in borrower income were associated with decreased probability 

of a loan being troubled by the 3-year anniversary (see fig. 20). There 

were no significant differences between the estimated RHS and FHA 

coefficients.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 110 GAO-16-801 RHS Mortgage Guarantees

Figure 20: Relationship between Borrower Income and Troubled Loan Performance 

after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011

As shown in figure 21, larger loan amounts were associated with higher 

probabilities of troubled performance by the 3-year anniversary. There 

were no significant differences between the estimated RHS and FHA 

coefficients.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 111 GAO-16-801 RHS Mortgage Guarantees

Figure 21: Relationship between Loan Amount and Troubled Loan Performance 

after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in Fiscal Years 

2010–2011

As shown in figure 22, increases in the DTI ratio were associated with 

modest increases in the probability of troubled performance by the 3-year 

anniversary. The differences in the estimated coefficients in the greaterthan-31-to-36 category and the greater-than-46 category were statistically 

significant (although relatively few RHS borrowers were in the latter 

category).
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 112 GAO-16-801 RHS Mortgage Guarantees

Figure 22: Relationship between Debt-Service-to-Income Ratio and Troubled Loan 

Performance after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2011

There were some differences between the agencies in the estimated 

effects of mortgage rate spread (see fig. 23). For both agencies, higher 

spreads were associated with higher estimated probabilities of troubled 

performance by the 3-year anniversary. However, the estimates for RHS 

exhibit a relatively flat pattern (that is, the probability of troubled 

performance was not as sensitive to changes in the mortgage rate 

spread) compared with the FHA estimates.13

 13For some spread categories in the middle of the range for the RHS estimates, the 

estimated coefficients were not significantly different from one another, confirming the 

observed flatness. This was not the case for the FHA estimates.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 113 GAO-16-801 RHS Mortgage Guarantees

Figure 23: Relationship between Mortgage Rate Spread and Troubled Loan 

Performance after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2011

As previously noted, both the RHS and FHA programs have low or no 

down-payment features, and more than one-half of RHS borrowers had 

LTV ratios at origination that exceeded 100 percent. However, fewer than 

1 percent of FHA loans had LTV ratios exceeding 100 percent, which 

provides little rationale for modeling FHA loan performance on a standalone basis using a four-category LTV specification—that is, using a 

specification with a separate category for loans with LTVs of 100 percent 

or more. The four-category specification is more appropriate for modeling 

RHS loan performance. For both agencies, the expected probability of a 

loan being troubled by the 3-year anniversary increases with LTV values, 

with the exception of the top category for FHA loans. Our results show 

that for RHS loans, moving to the LTV category with values at or 

exceeding 100 percent was associated with an increase in the probability 

of a loan being troubled by the anniversary date (see fig. 24). The 

differences between the RHS and FHA coefficient estimates were not 

statistically significant.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 114 GAO-16-801 RHS Mortgage Guarantees

Figure 24: Relationship between Loan-to-Value Ratio and Troubled Loan 

Performance after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2011

As shown in figure 25, the influence of house price appreciation was

modest for RHS and FHA loans, possibly in part because overall rates of 

house price appreciation were moderate during the period covered by our 

analysis.14 The differences between the estimated RHS and FHA 

coefficients were not statistically significant.

 14According to data from the Federal Housing Finance Agency’s Expanded-Data House 

Price index, average house prices appreciated less than 10 percent at the national level 

from fiscal years 2010 through 2014, or an average of less than 2 percent annually.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 115 GAO-16-801 RHS Mortgage Guarantees

Figure 25: Relationship between House Price Appreciation and Troubled Loan 

Performance after 3 Years for RHS- and FHA-Guaranteed Home Purchase Loans in 

Fiscal Years 2010–2011

The estimated effects of first-time homebuyer status differed in the 

agency-specific regressions. Both programs are attractive to first-time 

homebuyers because of the low (or no) down-payment requirements. In 

our data set, 85 percent of RHS borrowers and 76 percent of FHA 

borrowers were first-time homebuyers. However, the share of FHA 

borrowers who were first-time homebuyers was greater in locations that 

are not eligible for the RHS program. In the FHA regression, the 

estimated coefficient for first-time homebuyer status is positive (it is 

associated with a higher expected probability of troubled loan 

performance) and statistically significant. In the RHS regression, the 

estimated coefficient is not statistically significant at the 10 percent level. 

This suggests that non-first-time homebuyer status is not associated with 

better loan performance.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 116 GAO-16-801 RHS Mortgage Guarantees

In general, we believe that the performance of RHS and FHA loans is well 

explained by the model. Additionally, given the similar patterns of 

association between key explanatory characteristics and the expected 

probability of troubled loan performance, we believe it is reasonable to 

use the model and a pooled data set—that is, data from both agencies 

combined—to investigate how differences between the portfolio 

characteristics of the two agencies influence loan performance. The 

presence of a similar underlying model structure is evidenced by the RHS 

and FHA stand-alone regressions, which showed similar decreasing 

relationships between borrower credit scores and the expected probability 

of troubled loan performance (that is, high expected values at low credit 

scores and steep declines in expected values as scores increase). While 

the estimates were significantly different across portions of the credit 

score range, for other important characteristics the similarity of the 

underlying model structure was confirmed by similarities in the 

association with troubled loan status and the absence of statistically 

significant differences between the two agencies. In particular, we 

observed similar decreasing relationships between borrower income and 

the expected probability of troubled loan performance and similar 

increasing relationships between loan amount and expected troubled loan 

performance.

The advantage in assuming a common model structure and using a 

pooled data set is that we can use the estimated coefficients to calculate 

the expected probability of a loan with particular characteristic values 

being in a troubled status by the 36th month anniversary. One 

comparison is to calculate these probabilities using the mean values for 

the entire set of explanatory characteristics observed for each agency 

(agency-specific mean values). Another method of comparison is to 

calculate these probabilities using the mean values of the pooled 

characteristics (pooled mean values) to provide a base value, and then to 

substitute agency-specific mean values for particular characteristics. For 

example, if RHS borrowers had riskier characteristics than FHA 

borrowers, then given the set of coefficient estimates for the pooled data, 

the expected probability of a loan being troubled by the anniversary 

period would be higher for RHS than for FHA. To the extent that each 

agency’s borrower characteristics are similar, the expected probabilities 

for each agency will be similar. To the extent that the characteristics 

diverge, the probabilities will diverge. Figure 26 shows the expected 

Performance Comparison 

Using Pooled Agency Data
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 117 GAO-16-801 RHS Mortgage Guarantees

troubled loan rate for each agency using the pooled coefficients and the 

pooled or agency-specific mean values for the various characteristics.15

Figure 26: Estimated Influence of Portfolio Characteristics on 3-Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011

We estimated four alternative specifications of the model to determine the 

extent to which our results varied depending on plausible changes in 

assumptions and to examine the effect of particular factors relevant to 

RHS program features.

• First, we estimated a specification in which we did not restrict 

borrower incomes based on RHS household income limits. This had 

 15See tables for mean values in appendix VII. 

Alternative Model 

Specifications
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 118 GAO-16-801 RHS Mortgage Guarantees

the effect of including many more FHA observations with relatively 

higher incomes—improving expected FHA performance—and serves 

to highlight the importance of borrower income.

• Second, we also estimated a model specification with three LTV ratio 

categories instead of four. That is, we combined the top two 

categories of the range, so that the top category included all LTV ratio 

values greater than or equal to 96 percent. Given the categorical 

nature of the way variables are defined, in this specification it 

becomes impossible to distinguish between LTV ratio values that are 

slightly less than 100 percent from those that are slightly above. In 

contrast to the primary specification, this specification predicts better 

performance for RHS than for FHA for reasons described below.

• Third, we also chose a specification in which we included only those 

locations that were the most rural in character (large rural towns and 

small town and isolated rural areas) on the basis of the Rural-Urban 

Commuting Area codes. This permitted us to analyze loan 

performance in the more rural portions of the RHS-eligible areas. This 

specification produced similar results to the primary specification in 

terms of the two agencies’ relative loan performance.

• Finally, we chose a specification that used a 2-year anniversary 

period. This specification produced almost identical expected 

performance for both agencies.

Under the first alternative model specification, many FHA borrowers 

within RHS-eligible areas have incomes exceeding RHS income limits. 

Since higher incomes are associated with a lower risk of a loan being 

troubled, actual and predicted FHA performance improves when these 

observations are not excluded from the estimation. Figure 27 shows the 

results of this first alternative specification. Compared with the results for 

the primary model specification (see fig. 26 above), the expected 

probability of a loan becoming troubled by its 3-year anniversary is lower 

with all characteristics at their pooled mean values. Additionally, the 

expected probability of troubled loan performance is considerably higher 

with all characteristics at RHS-specific mean values than it is with all 

characteristics at FHA-specific mean values. Borrower income is 

particularly important to this outcome, suggesting that the inclusion of 

higher-income borrowers in RHS-eligible areas is associated with better 

FHA performance.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 119 GAO-16-801 RHS Mortgage Guarantees

Figure 27: Estimated Influence of Portfolio Characteristics on 3-Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011, Using a Model Specification with No Income Restriction

Under the second alternative model specification, we examined the 

importance of the top end of the LTV ratio range. While few FHA loans 

had an LTV ratio exceeding 100 percent, many RHS loans did. Within the 

RHS stand-alone regression, moving from an LTV ratio below 100 

percent to one above 100 percent has a positive and significant effect on 

the probability of troubled loan performance. The second alternative 

specification uses only three categories of LTV ratio (rather than the four 

categories used in the primary specification), with the highest category 

starting at 96 percent.

Figure 28 shows the results of this second alternative specification. In 

contrast to the results for the primary specification (see fig. 26 above), the 

expected probability of troubled loan performance is lower with all 

characteristics at RHS-specific mean values than it is with all 

characteristics at FHA-specific mean values. In particular, the contribution 
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 120 GAO-16-801 RHS Mortgage Guarantees

of LTV ratio appears to favor rather than disadvantage RHS performance 

because FHA has a larger proportion of loans than RHS in the highest 

category (which does not distinguish between LTV ratios of 96 to 99.9 

percent and those of 100 percent or more). Taken together, our analyses 

suggest that for RHS borrowers, beginning homeownership with negative 

equity is associated with a higher probability of troubled performance than 

beginning with low but positive equity.

Figure 28: Estimated Influence of Portfolio Characteristics on 3-Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011, Using a Model Specification with Three Loan-to-Value Ratio 

Categories

Under the third alternative specification, we focused on the possibility that 

loan performance may be different in the most rural parts of RHS-eligible 

areas. In this specification, we included only observations corresponding 

with Rural-Urban Commuting Area codes for locations less integrated into 

urban areas. Commuting-to-work patterns are an important component of 

the Rural-Urban Commuting Area classification scheme so that, for 

example, if a rural area is close enough to an urban area to be attractive 
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 121 GAO-16-801 RHS Mortgage Guarantees

to commuters, housing market transactions in those areas may be more 

standardized than in more rural areas with fewer employment 

opportunities. There also may be differences in the characteristics of RHS 

and FHA borrowers in these areas. When we restricted our analysis to 

observations in large rural towns and small town and isolated rural areas

within RHS-eligible areas, we found that the overall incidence of troubled 

loans was lower in these more rural areas. However, the effects of 

portfolio characteristics on expected probabilities of troubled loan status 

were generally similar to those we found in RHS-eligible areas overall 

(see fig. 29). As a result, figure 29 resembles figure 26 (which does not 

impose the additional geographic restriction) in many respects.

Figure 29: Estimated Influence of Portfolio Characteristics on 3-Year Performance of RHS- and FHA-Guaranteed Home 

Purchase Loans in More Rural Parts of RHS-Eligible Areas, Fiscal Years 2010–2011

Note: The analysis is limited to loans for properties in large rural towns and small town and isolated 

rural areas, as defined by Rural-Urban Commuting Area codes, within RHS-eligible areas.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 122 GAO-16-801 RHS Mortgage Guarantees

Finally, we estimated a fourth alternative specification that is the same as 

our primary specification except that it focuses on a 2-year anniversary 

period. As with the case of the 3-year specification, we believe that standalone estimates for each agency suggest a common underlying structure. 

Fewer loans are troubled after 2 years than after 3 years; however, we 

were able to increase the number of observations because more loans 

had 2 years of history available by the end of fiscal year 2014 than had 3 

years of history. In contrast to the 3-year actual troubled loan rates, we 

found that the agencies had almost identical 2-year actual troubled loan 

rates (3.8 percent for RHS and 3.9 percent for FHA). 

Using the pooled data set, the effects of particular characteristics after 2 

years of performance were similar to those observed in the 3-year case 

(see fig. 30). In contrast to figure 26 above (which describes the results of 

our primary 3-year specification), the expected probability of troubled 

performance is slightly lower with all characteristics at RHS-specific mean 

values than with all characteristics at FHA-specific mean values. This 

result is consistent with the fact that the actual RHS troubled loan rate, 

although quite similar to FHA’s, was slightly lower. However, income and 

LTV ratio characteristics associated with the RHS portfolio disadvantaged

RHS performance.
Appendix VI: Description of Our Statistical 

Model Comparing the Performance of Home 

Purchase Loans Guaranteed by RHS and FHA

Page 123 GAO-16-801 RHS Mortgage Guarantees

Figure 30: Estimated Influence of Portfolio Characteristics on 2-Year Performance of RHS- and FHA Guaranteed Home 

Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2012
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 124 GAO-16-801 RHS Mortgage Guarantees

This appendix describes the results of our statistical model comparing the 

performance of single-family home purchase loans guaranteed by the 

Rural Housing Service (RHS) and the Federal Housing Administration 

(FHA) in fiscal years 2010–2012 in RHS-eligible areas after 2 and 3 years 

of performance.1 We analyzed performance for RHS and FHA loans 

separately and for RHS and FHA loans combined using various model 

specifications. For example, under one specification, we limited the 

borrowers to those with incomes within the county-level household 

income limits set by RHS. We restricted the data in this way to account 

for the absence of FHA limits on borrower household income, which 

resulted in FHA serving some borrowers with higher incomes than RHS is 

allowed to serve. Additionally, we analyzed 3-year performance using a 

specification with four loan-to-value ratio categories and another 

specification using three loan-to-value ratio categories.

 1

We analyzed loan-level data on the performance of 30-year, fixed-rate loans (excluding 

those for units in condominium and cooperative developments). For the purpose of 

comparing performance, we limited the FHA-guaranteed loans to those for properties in 

census tracts that were at least 95 percent in RHS-eligible areas. For our analysis of loan 

performance, we used this stricter threshold to help ensure that our statistical model did 

not include FHA loans that may have different performance attributes by virtue of being 

just outside of RHS-eligible areas (for example, due to different house price or 

employment patterns). Because the analysis focuses on the payment status of the loans, 

we used the first payment month as the starting point for measuring performance. The first 

payment month may be up to 2 months after the month the loan is guaranteed. Therefore, 

to examine the performance of loans after 2 years of performance (that is, loans that were 

guaranteed in fiscal years 2010–2012), we focused on loans with first payment months 

from December 2009 through October 2012. Similarly, to examine the performance of 

loans after 3 years of performance (loans guaranteed in fiscal years 2010–2011), we 

focused on loans with first payment months from December 2009 through October 2011.

Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed 

in RHS-Eligible Areas in Fiscal Years 2010–

2012
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 125 GAO-16-801 RHS Mortgage Guarantees

Table 45: Mean Values under Various Model Specifications for RHS- and FHA-Guaranteed Home Purchase Loans in RHSEligible Areas, Fiscal Years 2010–2011

All RHS-eligible areas, 

without RHS income limits

All RHS-eligible areas, with 

RHS income limitsa

Large rural towns, small 

town and isolated rural 

areas, with RHS income 

limitsb

RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc

Number of observations 190,924 276,933 467,857 187,467 203,319 390,786 59,601 43,689 103,290

Troubled loan rate after 3 years 0.068 0.051 0.058 0.068 0.059 0.063 0.061 0.054 0.058

Mean values

Quarter of first payment by fiscal year

First quarter of 2010 0.070 0.058 0.063 0.070 0.058 0.064 0.073 0.052 0.064

Second quarter of 2010 0.173 0.129 0.147 0.174 0.130 0.151 0.173 0.121 0.151

Third quarter of 2010 0.175 0.136 0.152 0.175 0.134 0.154 0.172 0.122 0.151

Fourth quarter of 2010 0.066 0.207 0.149 0.066 0.215 0.143 0.069 0.226 0.135

First quarter of 2011 0.088 0.139 0.118 0.088 0.140 0.115 0.097 0.148 0.119

Second quarter of 2011 0.097 0.057 0.073 0.097 0.059 0.077 0.096 0.060 0.081

Third quarter of 2011 0.113 0.107 0.109 0.113 0.104 0.108 0.108 0.103 0.106

Fourth quarter of 2011 0.157 0.131 0.142 0.158 0.126 0.141 0.153 0.133 0.145

First quarter of 2012 0.060 0.037 0.046 0.060 0.035 0.047 0.058 0.036 0.049

Census divisions

Middle Atlantic 0.050 0.112 0.087 0.050 0.108 0.081 0.030 0.063 0.044

East North Central 0.195 0.128 0.155 0.195 0.137 0.165 0.227 0.158 0.198

West North Central 0.116 0.076 0.093 0.117 0.084 0.100 0.197 0.166 0.184

South Atlantic 0.196 0.205 0.201 0.197 0.204 0.201 0.078 0.101 0.088

East South Central 0.105 0.096 0.100 0.106 0.102 0.104 0.129 0.128 0.129

West South Central 0.149 0.143 0.146 0.149 0.131 0.140 0.110 0.105 0.108

Mountain 0.075 0.074 0.075 0.075 0.074 0.075 0.128 0.143 0.134

Pacific 0.079 0.118 0.102 0.078 0.115 0.097 0.065 0.101 0.080

New England 0.035 0.048 0.043 0.035 0.045 0.040 0.036 0.036 0.036

Borrower credit score

Less than 620 0.020 0.035 0.028 0.020 0.039 0.030 0.025 0.040 0.032

620–639 0.113 0.118 0.116 0.113 0.129 0.121 0.107 0.127 0.116

640–659 0.160 0.151 0.154 0.159 0.157 0.158 0.150 0.157 0.153

660–679 0.147 0.139 0.143 0.147 0.140 0.143 0.146 0.140 0.144

680–699 0.128 0.123 0.125 0.129 0.120 0.124 0.128 0.121 0.125

700–719 0.110 0.103 0.106 0.110 0.100 0.105 0.111 0.101 0.107

720–759 0.185 0.176 0.179 0.185 0.167 0.176 0.190 0.167 0.180
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 126 GAO-16-801 RHS Mortgage Guarantees

All RHS-eligible areas, 

without RHS income limits

All RHS-eligible areas, with 

RHS income limitsa

Large rural towns, small 

town and isolated rural 

areas, with RHS income 

limitsb

RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc

760–799 0.117 0.132 0.126 0.117 0.124 0.120 0.121 0.121 0.121

800 or more 0.020 0.023 0.022 0.020 0.024 0.022 0.021 0.026 0.023

Debt-service-to-income ratio (percentage)

5–<31 0.265 0.187 0.219 0.263 0.158 0.208 0.314 0.200 0.266

31–<36 0.189 0.143 0.162 0.189 0.135 0.161 0.194 0.144 0.173

36–<41 0.233 0.175 0.198 0.233 0.175 0.203 0.226 0.178 0.206

41–<46 0.180 0.195 0.189 0.181 0.207 0.195 0.160 0.196 0.175

≥46 0.133 0.299 0.231 0.134 0.325 0.233 0.106 0.282 0.181

Loan amount (in dollars)

Less than 100,000 0.326 0.214 0.260 0.331 0.276 0.302 0.478 0.420 0.454

100,000–149,999 0.349 0.274 0.305 0.352 0.325 0.338 0.317 0.320 0.318

150,000–199,999 0.219 0.232 0.227 0.217 0.229 0.224 0.144 0.170 0.155

200,000 or more 0.107 0.279 0.209 0.100 0.169 0.136 0.060 0.090 0.073

Borrower income (in dollars)

Less than 30,000 0.144 0.095 0.115 0.147 0.129 0.137 0.193 0.169 0.183

30,000–39,999 0.229 0.137 0.174 0.233 0.186 0.209 0.252 0.205 0.232

40,000–49,999 0.224 0.143 0.176 0.228 0.195 0.211 0.216 0.194 0.207

50,000–59,999 0.172 0.128 0.146 0.176 0.175 0.175 0.159 0.172 0.165

60,000–69,999 0.122 0.108 0.114 0.125 0.148 0.137 0.109 0.139 0.122

70,000–79,999 0.073 0.092 0.084 0.073 0.118 0.096 0.061 0.105 0.080

80,000–89,999 0.022 0.079 0.056 — — — — — —

90,000 or more 0.013 0.218 0.134 — — — — — —

80,000 or more — — — 0.019 0.049 0.035 0.009 0.015 0.012

First-time homebuyer 0.847 0.694 0.756 0.852 0.761 0.804 0.845 0.741 0.801

USDA’s Rural-Urban Commuting Area codesa

Urban 0.283 0.388 0.345 0.282 0.370 0.328 — — —

Suburban 0.400 0.407 0.404 0.400 0.416 0.408 — — —

Large rural town 0.097 0.062 0.076 0.097 0.066 0.081 0.304 0.308 0.306

Small town and isolated rural area 0.221 0.143 0.175 0.221 0.149 0.184 0.696 0.692 0.694

House price appreciation after 3 years (percentage)

Decrease of greater than 3 0.249 0.316 0.288 0.249 0.315 0.283 0.202 0.249 0.222

Decrease of greater than 0 to 3 0.190 0.201 0.196 0.191 0.210 0.201 0.201 0.230 0.213

No change to increase of 4 0.346 0.269 0.300 0.346 0.269 0.306 0.368 0.286 0.333
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 127 GAO-16-801 RHS Mortgage Guarantees

All RHS-eligible areas, 

without RHS income limits

All RHS-eligible areas, with 

RHS income limitsa

Large rural towns, small 

town and isolated rural 

areas, with RHS income 

limitsb

RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc RHS FHA

RHS-FHA 

combinedc

Increase of greater than 4 0.215 0.215 0.215 0.214 0.206 0.210 0.230 0.235 0.232

Mortgage rate spread over 10-year Treasury rate (percentage)

1–1.5 0.235 0.256 0.247 0.235 0.240 0.238 0.227 0.220 0.224

>1.5–1.75 0.198 0.224 0.213 0.198 0.217 0.208 0.192 0.211 0.200

>1.75–2 0.227 0.238 0.234 0.228 0.240 0.234 0.227 0.239 0.232

>2–2.25 0.163 0.161 0.162 0.163 0.170 0.166 0.170 0.180 0.174

>2.25–2.5 0.106 0.076 0.088 0.106 0.082 0.093 0.111 0.093 0.104

>2.5 0.071 0.046 0.056 0.071 0.050 0.060 0.073 0.057 0.066

Loan-to-value ratio (percentage)

<90 0.092 0.051 0.068 0.093 0.055 0.073 0.106 0.055 0.084

90–95.9 0.119 0.094 0.104 0.120 0.087 0.103 0.131 0.081 0.110

96–99.9 0.220 0.849 0.593 0.221 0.850 0.548 0.231 0.859 0.496

≥100 0.569 0.006 0.236 0.567 0.008 0.276 0.532 0.005 0.309

Months of liquid assets

No liquid assets 0.306 — — 0.307 — — 0.287 — —

1 or 2 months 0.129 — — 0.129 — — 0.118 — —

More than 2 month 0.195 — — 0.195 — — 0.197 — —

No information 0.370 — — 0.369 — — 0.398 — —

Legend: — = not calculated because it was not applicable or no data were available; > = greater than; < = less than; ≥ = greater than or equals

Source: GAO analysis of Federal Housing Finance Agency, U.S. Department of the Treasury, U.S. Department of Agriculture (USDA), and RHS and FHA loan-level data. | GAO-16-801

Notes: The performance analysis focuses on 30-year, fixed-rate loans guaranteed Rural Housing 

Service (RHS) and Federal Housing Administration (FHA) for purchasing single-family homes 

(excluding loans for units in condominium and cooperative developments). We limited the set of FHAguaranteed loans to those for properties in census tracts that were at least 95 percent in RHS-eligible 

areas. For parts of the analysis, we also limited the set of FHA-guaranteed loans to borrowers with 

incomes within the county-level household income limits set by RHS. Because the analysis focuses 

on the payment status of the loans, we used the first payment month as the starting point for 

measuring performance. The first payment month may be up to 2 months after the month the loan is 

guaranteed. Therefore, to examine the performance of loans that were guaranteed in fiscal years 

2010–2011, we focused on loans with first payment months from December 2009 through October 

2011. Troubled loan rate represents the share of loans that were 90 or more days delinquent, in the 

foreclosure process, or terminated with a claim.

a

For a number of possible reasons, some RHS loans dropped out of the analysis once we imposed 

the RHS income limits. For example, in cases where the loan processing period spanned changes in 

the income limit, it is possible that we applied the new limit when the lender used the prior limit.

b

We analyzed performance by degree of rurality using USDA’s Rural-Urban Commuting Area codes, 

which classify all census tracts in the United States on a continuum from rural to urban based on daily 

commuting patterns and population density. Areas can be classified into four types of locations 

(urban, suburban, large rural town, and small town and isolated rural area).

c

A data set that included both agencies’ loans.
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 128 GAO-16-801 RHS Mortgage Guarantees

As shown in the following tables, we estimated coefficients for the 

different categories that comprise each explanatory variable. The 

coefficient for a particular category is an estimate of the effect of being in 

that category as distinct from the omitted category. The omitted 

categories are as follows: borrower credit score (760–799); debt-serviceto-income ratio (36 percent to less than 41 percent); loan amount 

($100,000–$149,999); borrower income ($50,000–$59,999); first-time 

homebuyer (non-first-time homebuyer); house price appreciation 

(decrease of greater than 0 to 3.5 percent for the 2-year performance 

analysis and decrease of greater than 0 to 3 percent for the 3-year 

performance analysis); mortgage spread over 10-year Treasury rate 

(greater than 2 percent to 2.25 percent); loan-to-value ratio (96 percent to 

99.9 percent); and months of liquid assets (1 or 2 months). 

Table 46: Performance Simulation Results after 3 Years under Various Model Specifications for RHS- and FHA-Guaranteed 

Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2011, Using a Four-Category Loan-to-Value Ratio Variable

All RHS-eligible areas, without 

RHS income limits

All RHS-eligible areas, with RHS 

income limitsa

Large rural towns, small town 

and isolated rural areas, with 

RHS income limitsb

All RHSeligible 

areas, 

with RHS 

income 

limits and 

RHS 

borrower 

liquid 

asset 

variable 

(RHS 

loans 

only)c

RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS

Number of 

observations 190,924 276,933 467,857 187,467 203,319 390,786 59,601 43,689 103,290 187,467

Troubled 

loan rate 

after 3 

years 

(percentage) 6.82 5.09 5.8 6.82 5.88 6.33 6.14 5.38 5.82 6.82

Concordant pairs 

(percentage) 72.8 73.8 73.4 72.9 72.4 72.5 73.2 72.8 72.9 73.2

-2Log 

likelihood

86,905.5

0 101,536.60 188,895.70 85,286.70 83,702.60 169,336.30 25,098.50 16,803.80 42,009.10 85,004.30
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 129 GAO-16-801 RHS Mortgage Guarantees

All RHS-eligible areas, without 

RHS income limits

All RHS-eligible areas, with RHS 

income limitsa

Large rural towns, small town 

and isolated rural areas, with 

RHS income limitsb

All RHSeligible 

areas, 

with RHS 

income 

limits and 

RHS 

borrower 

liquid 

asset 

variable 

(RHS 

loans 

only)c

RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS

Coefficient and statistical significance

Borrower credit score

Less than 

620 2.517 ** 2.286 ** 2.377 ** 2.507 ** 2.280 ** 2.381 ** 2.256 ** 2.252 ** 2.248 ** 2.468 **

620–639 2.523 ** 2.173 ** 2.320 ** 2.520 ** 2.174 ** 2.335 ** 2.320 ** 2.201 ** 2.265 ** 2.468 **

640–659 2.191 ** 1.806 ** 1.977 ** 2.185 ** 1.792 ** 1.986 ** 1.935 ** 1.799 ** 1.877 ** 2.119 **

660–679 1.804 ** 1.405 ** 1.587 ** 1.795 ** 1.423 ** 1.610 ** 1.619 ** 1.448 ** 1.554 ** 1.740 **

680–699 1.405 ** 1.067 ** 1.218 ** 1.390 ** 1.067 ** 1.228 ** 1.176 ** 1.163 ** 1.169 ** 1.348 **

700–719 1.093 ** 0.800 ** 0.929 ** 1.093 ** 0.821 ** 0.955 ** 0.893 ** 0.902 ** 0.897 ** 1.060 **

720–759 0.582 ** 0.438 ** 0.496 ** 0.568 ** 0.458 ** 0.507 ** 0.441 ** 0.495 ** 0.461 ** 0.549 **

800 or 

more -0.011 / -0.080 / -0.056 / -0.022 * -0.052 * -0.038 * 0.076 / 0.097 / 0.071 / -0.004 /

Debt-service-to-income ratio (percentage)

5–<31 -0.172 ** -0.256 ** -0.199 ** -0.170 ** -0.222 ** -0.183 ** -0.216 ** -0.262 ** -0.229 ** -0.158 **

31–<36 -0.028 / -0.133 ** -0.072 ** -0.027 * -0.112 ** -0.059 * 0.011 / -0.116 * -0.026 / -0.024 /

36–<41 0.098 ** 0.057 * 0.069 ** 0.096 ** 0.061 * 0.072 ** 0.065 / 0.083 ** 0.070 * 0.089 **

41–<46 0.263 ** 0.138 ** 0.157 ** 0.260 ** 0.130 ** 0.153 ** 0.220 ** 0.107 ** 0.124 ** 0.240 **

Loan amount (in dollars)

Less than 

100,000 -0.255 ** -0.306 ** -0.293 ** -0.256 ** -0.312 ** -0.295 ** -0.260 ** -0.249 ** -0.266 **

-

0.254 **

150,000–

199,999 0.197 ** 0.170 ** 0.192 ** 0.200 ** 0.191 ** 0.204 ** 0.271 ** 0.267 ** 0.273 ** 0.203 **

200,000 

or more 0.472 ** 0.473 ** 0.491 ** 0.473 ** 0.474 ** 0.486 ** 0.495 ** 0.268 ** 0.395 ** 0.480 **

Borrower income (in dollars)

Less than 

30,000 0.591 ** 0.579 ** 0.605 ** 0.594 ** 0.590 ** 0.609 ** 0.749 ** 0.788 ** 0.782 ** 0.585 **

30,000–

39,999 0.360 ** 0.371 ** 0.383 ** 0.362 ** 0.377 ** 0.385 ** 0.439 ** 0.473 ** 0.470 ** 0.358 **
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 130 GAO-16-801 RHS Mortgage Guarantees

All RHS-eligible areas, without 

RHS income limits

All RHS-eligible areas, with RHS 

income limitsa

Large rural towns, small town 

and isolated rural areas, with 

RHS income limitsb

All RHSeligible 

areas, 

with RHS 

income 

limits and 

RHS 

borrower 

liquid 

asset 

variable 

(RHS 

loans 

only)c

RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS

40,000–

49,999 0.131 ** 0.176 ** 0.161 ** 0.131 ** 0.178 ** 0.162 ** 0.165 ** 0.334 ** 0.243 ** 0.128 **

60,000–

69,999 -0.186 ** -0.167 ** -0.186 ** -0.187 ** -0.169 ** -0.187 ** -0.164 * -0.102 ** -0.144 * -0.185 **

70,000–

79,999 -0.290 ** -0.313 ** -0.326 ** -0.286 ** -0.311 ** -0.320 ** -0.345 ** -0.440 ** -0.417 ** -0.283 **

80,000–

89,999 -0.158 * -0.392 ** -0.389 ** — / — / — / — / — / — / — /

90,000 or 

more -0.087 / -0.689 ** -0.718 ** — / — / — / — / — / — / — /

80,000 or 

more — / — / — / -0.198 * -0.356 ** -0.337 ** -0.075 / -0.202 ** -0.163 / -0.198 **

First-time 

homebuyer -0.033 / 0.098 ** 0.065 ** -0.040 * 0.079 ** 0.043 ** -0.099 * 0.024 ** -0.023 -0.068 *

House price appreciation (percentage)

Decrease of 

greater than 

3 0.062 ** 0.051 / 0.057 ** 0.061 * 0.065 * 0.063 ** -0.017 / -0.090 / -0.054 / 0.059 *

No change 

to increase 

of 4 -0.038 * -0.078 ** -0.059 ** -0.038 / -0.067 * -0.053 * -0.114 * -0.021 / -0.081 * -0.038 **

Increase of 

greater than 

4 -0.245 * -0.307 ** -0.289 ** -0.250 ** -0.303 ** -0.285 ** -0.342 ** -0.256 ** -0.320 ** -0.251 **

Mortgage rate spread over 10-year Treasury rate (percentage)

1–1.5 -0.100 ** -0.345 ** -0.263 ** -0.111 ** -0.330 ** -0.249 ** -0.128 * -0.328 ** -0.236 ** -0.094 *

>1.5–1.75 -0.050 / -0.218 ** -0.166 ** -0.053 / -0.198 ** -0.149 ** 0.006 / -0.255 ** -0.124 * -0.046 /

>1.75–2 -0.031 / -0.107 ** -0.091 ** -0.036 / -0.117 ** -0.094 ** -0.035 / -0.091 / -0.076 / -0.037 /

>2.25–2.5 0.091 * 0.143 ** 0.142 ** 0.086 * 0.139 ** 0.135 ** 0.118 * 0.150 * 0.156 ** 0.085 *

>2.5 0.129 * 0.296 ** 0.240 ** 0.129 * 0.288 ** 0.229 ** 0.242 ** 0.293 ** 0.288 ** 0.129 *

Loan-to-value ratio (percentage)
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 131 GAO-16-801 RHS Mortgage Guarantees

All RHS-eligible areas, without 

RHS income limits

All RHS-eligible areas, with RHS 

income limitsa

Large rural towns, small town 

and isolated rural areas, with 

RHS income limitsb

All RHSeligible 

areas, 

with RHS 

income 

limits and 

RHS 

borrower 

liquid 

asset 

variable 

(RHS 

loans 

only)c

RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS FHA

RHS-FHA 

combined RHS

<90 -0.408 ** -0.422 ** -0.327 ** -0.409 ** -0.396 ** -0.319 ** -0.445 ** -0.409 ** -0.350 ** -0.400 **

90–95.9 -0.204 ** -0.163 ** -0.104 ** -0.204 ** -0.155 ** -0.099 ** -0.237 ** -0.139 / -0.126 ** -0.202 **

≥100 0.042 * -0.031 / 0.246 ** 0.047 * -0.049 / 0.231 ** 0.030 / -0.147 / 0.180 ** 0.046 *

Months of liquid assets

No liquid 

assets — / — / — / — / — / — / — / — / — / 0.253 /

More than 2 

months — / — / — / — / — / — / — / — / — / -0.234 **

No 

information — / — / — / — / — / — / — / — / — / 0.048 **

Legend: — = not calculated because it was not applicable or no data were available; > = greater than; < = less than; ≥ = greater than or equals; * = statistically significant at 10% level; ** = statistically 

significant at 1% level; / = not statistically significant at 1% or 10% level

Source: GAO analysis of Federal Housing Finance Agency, U.S. Department of the Treasury, U.S. Department of Agriculture (USDA), and RHS and FHA loan-level data. | GAO-16-801

Notes: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by the Rural 

Housing Service (RHS) and the Federal Housing Administration (FHA) for purchasing single-family 

homes (excluding loans for units in condominium and cooperative developments). We limited the set 

of FHA-guaranteed loans to those for properties in census tracts that were at least 95 percent in 

RHS-eligible areas. For parts of our analysis, we also limited the set of FHA-guaranteed loans to 

borrowers with incomes within the county-level household income limits set by RHS. Because the 

analysis focuses on the payment status of the loans, we used the first payment month as the starting 

point for measuring performance. The first payment month may be up to 2 months after the month the 

loan is guaranteed. Therefore, to examine the performance of loans that were guaranteed in fiscal 

years 2010–2011, we focused on loans with first payment months from December 2009 through 

October 2011. Troubled loan rate represents the share of loans that were 90 or more days 

delinquent, in the foreclosure process, or terminated with a claim. The columns “RHS-FHA combined”

used a data set that included both agencies’ loans.

a

For a number of possible reasons, some RHS loans dropped out of the analysis once we imposed 

the RHS income limits. For example, in cases where the loan processing period spanned changes in 

the income limit, it is possible that we applied the new limit when the lender used the prior limit.

b

We analyzed performance by degree of rurality using USDA’s Rural-Urban Commuting Area codes, 

which classify all census tracts in the United States on a continuum from rural to urban based on daily 

commuting patterns and population density. Areas can be classified into four types of locations 

(urban, suburban, large rural town, and small town and isolated rural area).

c

Data on liquid assets were available for approximately 80 percent of RHS borrowers.
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 132 GAO-16-801 RHS Mortgage Guarantees

Table 47: Performance Simulation Results after 3 years for RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2011, Using a Three-Category Loan-to-Value Ratio Variable 

Rural Housing Service (RHS)-

guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

Number of observations 187,467 203,319 390,786

Troubled loan rate after 3 years 

(percentage) 6.82 5.88 6.33

Concordant pairs (percentage) 72.9 72.4 72.4

-2Log likelihood 85,290.8 83,702.8 169,545.6

Coefficient and statistical significance

Borrower credit score

Less than 620 2.508 ** 2.280 ** 2.353 **

620–639 2.521 ** 2.174 ** 2.328 **

640–659 2.186 ** 1.792 ** 1.986 **

660–679 1.796 ** 1.423 ** 1.613 **

680–699 1.391 ** 1.067 ** 1.233 **

700–719 1.094 ** 0.821 ** 0.961 **

720–759 0.569 ** 0.458 ** 0.513 **

800 or more -0.022 / -0.052 / -0.044 /

Debt-service-to-income ratio (percentage)

5–<31 -0.170 ** -0.222 ** -0.173 **

31–<36 -0.027 / -0.112 ** -0.057 **

36–<41 0.096 ** 0.061 * 0.055 *

41–<46 0.259 ** 0.130 ** 0.113 **

Loan amount (in dollars)

Less than 100,000 -0.257 ** -0.312 ** -0.311 **

150,000–199,999 0.201 ** 0.191 ** 0.217 **

200,000 or more 0.474 ** 0.474 ** 0.503 **

Borrower income (in dollars)

Less than 30,000 0.592 ** 0.590 ** 0.620 **

30,000–39,999 0.361 ** 0.376 ** 0.396 **

40,000–49,999 0.131 ** 0.178 ** 0.169 **

60,000–69,999 -0.186 ** -0.169 ** -0.195 *

70,000–79,999 -0.285 ** -0.311 ** -0.339 **

80,000 or more -0.197 ** -0.356 ** -0.365 /

First-time homebuyer -0.039 * 0.079 ** 0.054 **

House price appreciation after 3 years (percentage)

Decrease of greater than 3 0.062 * 0.065 * 0.066 *
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 133 GAO-16-801 RHS Mortgage Guarantees

Rural Housing Service (RHS)-

guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

No change to increase of 4 -0.038 / -0.067 * -0.045 *

Increase of greater than 4 -0.249 ** -0.303 ** -0.286 **

Mortgage rate spread over 10-year Treasury rate (percentage)

1–1.5 -0.111 ** -0.330 ** -0.275 **

>1.5–1.75 -0.053 / -0.198 ** -0.168 **

>1.75–2 -0.036 / -0.117 ** -0.105 **

>2.25–2.5 0.086 * 0.139 ** 0.148 **

>2.5 0.130 * 0.288 ** 0.242 **

Loan-to-value ratio (percentage)

<90 -0.205 ** -0.240 ** -0.219 **

≥96 0.237 ** 0.155 ** 0.180 **

Legend: > = greater than; < = less than; ≥ = greater than or equals; * = statistically significant at 10% level; ** = statistically significant at 1% level; / = not statistically significant at 1% or 10% level.

Source: GAO analysis of Federal Housing Finance Agency, U.S. Department of the Treasury, and RHS and FHA loan-level data. | GAO-16-801

Notes: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by RHS and FHA 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We limited the set of FHA-guaranteed loans to those for properties in census tracts 

that were at least 95 percent in RHS-eligible areas. For this analysis, we also limited the set of FHAguaranteed loans to borrowers with incomes within the county-level household income limits set by 

RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the performance of loans that 

were guaranteed in fiscal years 2010–2011, we focused on loans with first payment months from 

December 2009 through October 2011. Troubled loan rate represents the share of loans that were 90 

or more days delinquent, in the foreclosure process, or terminated with a claim.

a

A data set that included both agencies’ loans.

Table 48: Mean Values for RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible Areas, Fiscal Years 2010–2012 

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

Number of observations 300,276 296,141 596,417

Troubled loan rate after 2 years 0.038 0.039 0.039

Mean values

Quarter of first payment by fiscal year

First quarter of 2010 0.044 0.040 0.042

Second quarter of 2010 0.108 0.089 0.099

Third quarter of 2010 0.109 0.092 0.101

Fourth quarter of 2010 0.041 0.148 0.094

First quarter of 2011 0.055 0.096 0.075

Second quarter of 2011 0.060 0.040 0.050
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 134 GAO-16-801 RHS Mortgage Guarantees

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

Third quarter of 2011 0.071 0.071 0.071

Fourth quarter of 2011 0.098 0.087 0.093

First quarter of 2012 0.104 0.081 0.093

Second quarter of 2012 0.076 0.072 0.074

Third quarter of 2012 0.084 0.076 0.080

Fourth quarter of 2012 0.109 0.087 0.098

First quarter of 2013 0.040 0.023 0.031

Census divisions

Middle Atlantic 0.055 0.108 0.081

East North Central 0.188 0.136 0.162

West North Central 0.116 0.082 0.099

South Atlantic 0.196 0.203 0.199

East South Central 0.108 0.101 0.105

West South Central 0.143 0.135 0.139

Mountain 0.076 0.076 0.076

Pacific 0.081 0.114 0.097

New England 0.037 0.044 0.041

Borrower credit score

Less than 620 0.016 0.038 0.027

620–639 0.089 0.120 0.104

640–659 0.165 0.166 0.166

660–679 0.153 0.146 0.150

680–699 0.134 0.123 0.128

700–719 0.114 0.100 0.107

720–759 0.191 0.164 0.178

760–799 0.118 0.119 0.119

800 or more 0.020 0.023 0.022

Debt-service-to-income ratio (percentage)

5–<31 0.269 0.160 0.215

31–<36 0.194 0.135 0.165

36–<41 0.234 0.177 0.206

41–<46 0.186 0.208 0.197

≥46 0.117 0.320 0.218

Loan amount (in dollars)

Less than 100,000 0.326 0.282 0.304

100,000–149,999 0.356 0.326 0.341
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 135 GAO-16-801 RHS Mortgage Guarantees

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

150,000–199,999 0.216 0.228 0.222

200,000 or more 0.102 0.165 0.133

Borrower income (in dollars)

Less than 30,000 0.148 0.130 0.139

30,000–39,999 0.237 0.186 0.212

40,000–49,999 0.227 0.194 0.211

50,000–59,999 0.175 0.175 0.175

60,000–69,999 0.123 0.149 0.136

70,000–79,999 0.070 0.118 0.094

80,000 or more 0.019 0.048 0.034

First-time homebuyer 0.854 0.758 0.806

USDA’s Rural-Urban Commuting Area codes

Urban 0.289 0.367 0.328

Suburban 0.400 0.415 0.408

Large rural town 0.094 0.067 0.081

Small town and isolated rural area 0.216 0.150 0.183

House price appreciation after 2 years (percentage)

Decrease of greater than 3.5 0.161 0.221 0.191

Decrease of greater than 0 to 3.5 0.264 0.269 0.267

No change to increase of 2.5 0.293 0.256 0.275

Increase of greater than 2.5 0.281 0.254 0.267

Mortgage rate spread over 10-year Treasury rate (percentage)

1-1.5 0.149 0.167 0.158

>1.5–1.75 0.163 0.186 0.175

>1.75–2 0.227 0.238 0.232

>2–2.25 0.245 0.224 0.234

>2.25–2.5 0.146 0.114 0.130

>2.5 0.070 0.072 0.071

Loan-to-value ratio (percentage)

<90 0.088 0.052 0.070

90–95.9 0.118 0.085 0.102

96–99.9 0.221 0.854 0.536

≥100 0.573 0.008 0.293

Months of liquid assets

No liquid assets 0.345 — —

1 or 2 months 0.149 — —
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 136 GAO-16-801 RHS Mortgage Guarantees

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing 

Administration (FHA)-

guaranteed loans

RHS and FHA guaranteed 

loans combineda

More than 2 month 0.231 — —

No information 0.275 — —

Legend: — = not calculated because no data were available; > = greater than; < = less than; ≥ = greater than or equals

Source: GAO analysis of Federal Housing Finance Agency, U.S. Department of the Treasury, U.S. Department of Agriculture (USDA), and RHS and FHA loan-level data. | GAO-16-801

Notes: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by RHS and FHA 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We limited the set of FHA-guaranteed loans to those for properties in census tracts 

that were at least 95 percent in RHS-eligible areas. For this analysis, we also limited the set of FHAguaranteed loans to borrowers with incomes within the county-level household income limits set by 

RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the 2-year performance of 

loans that were guaranteed in fiscal years 2010–2012, we focused on loans with first payment 

months from December 2009 through October 2012. Troubled loan rate represents the share of loans 

that were 90 or more days delinquent, in the foreclosure process, or terminated with a claim.

a

A data set that included both agencies’ loans.

Table 49: Performance Simulation Results after 2 Years for RHS- and FHA-Guaranteed Home Purchase Loans in RHS-Eligible 

Areas, Fiscal Years 2010–2012 

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing Administration (FHA)-

guaranteed loans

RHS-FHA guaranteed loans 

combineda

Number of observations 300,276 296,141 596,417

Troubled loan rate after 2 

years (percentage) 3.83 3.90 3.87

Concordant pairs 

(percentage) 74.1 74.2 74.0

-2Log likelihood 89,276.6 89,040.5 178,542.2

Coefficient and statistical significance

Borrower credit score

Less than 620 2.674 ** 2.563 ** 2.619 **

620–639 2.664 ** 2.449 ** 2.546 **

640–659 2.335 ** 2.074 ** 2.202 **

660–679 1.897 ** 1.619 ** 1.760 **

680–699 1.450 ** 1.220 ** 1.336 **

700–719 1.094 ** 0.889 ** 0.992 **

720–759 0.587 ** 0.555 ** 0.566 **

800 or more -0.377 * 0.103 * -0.075 *

Debt-service-to-income ratio (percentage)

5–<31 -0.233 ** -0.229 ** -0.225 **

31–<36 -0.027 / -0.058 * -0.037 *

36–<41 0.110 ** 0.112 ** 0.105 **
Appendix VII: Results of Statistical Model 

Comparing the Performance of Home 

Purchase Loans RHS and FHA Guaranteed in 

RHS-Eligible Areas in Fiscal Years 2010–2012

Page 137 GAO-16-801 RHS Mortgage Guarantees

Rural Housing Service 

(RHS)-guaranteed loans

Federal Housing Administration (FHA)-

guaranteed loans

RHS-FHA guaranteed loans 

combineda

41–<46 0.265 ** 0.225 ** 0.215 **

Loan amount (in dollars)

Less than 100,000 -0.247 ** -0.345 ** -0.302 **

150,000–199,999 0.202 ** 0.219 ** 0.217 **

200,000 or more 0.551 ** 0.539 ** 0.553 **

Borrower income (in dollars)

Less than 30,000 0.638 ** 0.646 ** 0.655 **

30,000–39,999 0.368 ** 0.391 ** 0.392 **

40,000–49,999 0.145 ** 0.200 ** 0.178 **

60,000–69,999 -0.161 ** -0.166 ** -0.171 **

70,000–79,999 -0.211 ** -0.297 ** -0.278 **

80,000 or more -0.201 ** -0.354 ** -0.328 **

First-time homebuyer 0.023 / 0.117 ** 0.091 **

House price appreciation (percentage)

Decrease of greater than 3.5 0.139 * 0.121 ** 0.132 **

No change to increase of 2.5 -0.004 * -0.040 ** -0.025 **

Increase of greater than 2.5 -0.070 * -0.182 ** -0.128 **

Mortgage rate spread over 10-year Treasury rate (percentage)

1–1.5 -0.260 ** -0.355 / -0.320 **

>1.5–1.75 -0.138 ** -0.242 ** -0.203 **

>1.75–2 -0.110 ** -0.080 ** -0.102 **

>2.25–2.5 0.077 * 0.147 ** 0.120 **

>2.5 0.118 ** 0.309 ** 0.213 **

Loan-to-value ratio (percentage)

<90 -0.283 ** -0.412 ** -0.292 **

90–95.9 -0.135 ** -0.188 ** -0.117 **

≥100 0.043 * -0.152 * 0.129 **

Legend: > = greater than; < = less than; ≥ = greater than or equals; * = statistically significant at 10% level; ** = statistically significant at 1% level; / = not statistically significant at 1% or 10% level

Source: GAO analysis of Federal Housing Finance Agency, U.S. Department of the Treasury, U.S. Department of Agriculture (USDA), and RHS and FHA loan-level data. | GAO-16-801

Notes: The performance analysis focuses on 30-year, fixed-rate loans guaranteed by RHS and FHA 

for purchasing single-family homes (excluding loans for units in condominium and cooperative 

developments). We limited the set of FHA-guaranteed loans to those for properties in census tracts 

that were at least 95 percent in RHS-eligible areas. For this analysis, we also limited the set of FHAguaranteed loans to borrowers with incomes within the county-level household income limits set by 

RHS. Because the analysis focuses on the payment status of the loans, we used the first payment 

month as the starting point for measuring performance. The first payment month may be up to 2 

months after the month the loan is guaranteed. Therefore, to examine the 2-year performance of 

loans that were guaranteed in fiscal years 2010–2012, we focused on loans with first payment 

months from December 2009 through October 2012. Troubled loan rate represents the share of loans 

that were 90 or more days delinquent, in the foreclosure process, or terminated with a claim.

a

A data set that included both agencies’ loans.
Appendix VIII: GAO Contact and Staff 

Acknowledgments

Page 138 GAO-16-801 RHS Mortgage Guarantees

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov.

In addition to the individual named above, Mathew J. Scirè (Director), 

Steve Westley (Assistant Director), Patricia MacWilliams (Analyst-inCharge), Abiud Amaro Diaz, Stephen Brown, William R. Chatlos, Anna 

Chung, John McGrail, John Mingus, Barbara Roesmann, and Jena 

Sinkfield made major contributions to this report. Additional support was 

provided by Melissa Kornblau, Alexandra Martin-Arseneau, and Heneng 

Yu.

Appendix VIII: GAO Contact and Staff 

Acknowledgments

GAO Contact

Staff 

Acknowledgments

(250816)
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