Federal Housing Administration: Decline in the Agency's Market Share Was Associated with Product and Process Developments of Other Mortgage Market Participants
Published: 2007-06-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Federal Housing Administration (FHA) historically has been an important participant in the mortgage market, which includes loans that carry government insurance or guarantees (such as FHA-insured mortgages) and those that do not (conventional mortgages). The conventional market comprises prime loans for the most creditworthy borrowers and subprime loans for borrowers with impaired credit. Reduced demand for FHA-insured mortgages--which are used primarily by borrowers who would have difficulty obtaining conventional prime loans--has raised questions about the agency's role in and ability to adapt to the mortgage market. This report discusses (1) trends in FHA's share of the market for home purchase mortgages from 1996 through 2005, and how they compared with the trends for other market segments; and (2) factors associated with the trends in FHA's market share and the implications of these trends for homebuyers and FHA. To address these objectives, GAO analyzed FHA and Home Mortgage Disclosure Act (HMDA) data and interviewed officials from FHA and other mortgage institutions.
section_title: What GAO Found
paragraphs: From 1996 through 2005, FHA's share of the market for home purchase mortgages in terms of numbers of loans declined 13 percentage points (from 19 to 6 percent), while the prime and subprime shares grew 3 and 13 percentage points, respectively. The agency experienced a sharp decrease among populations where it traditionally has had a strong presence. For example, FHA's market share dropped 25 percentage points (from 32 to 7 percent) among minority borrowers and 16 percentage points (from 26 to 10 percent) among low- and moderate-income borrowers. At the same time, subprime market share among these groups rose dramatically. The decline in FHA's market share was associated with a number of factors and has been accompanied by higher ultimate costs for certain conventional borrowers and a worsening in indicators of credit risk among FHA borrowers. More specifically, (1) FHA's product restrictions and lack of process improvements relative to the conventional market and (2) product innovations and expanded loan origination and funding channels in the conventional market--coupled with interest rate and house price changes--provided conditions that favored conventional over FHA-insured mortgages. In contrast to FHA-insured loans, the majority of conventional subprime loans had higher ultimate costs to borrowers, partly because their initial low interest rates could increase substantially in a short period of time. Relatively high default and foreclosure rates for subprime mortgages and a contraction of this market segment could shift market share to FHA. The extent to which this occurs will depend partly on the ability of FHA and other market participants to offer mortgage alternatives to borrowers considering or struggling to maintain higher-priced subprime loans.

section_title: Letter
paragraphs: Through its single-family mortgage insurance programs, the Department of  Through its single-family mortgage insurance programs, the Department of  Housing and Urban Development’s (HUD) Federal Housing Administration  Housing and Urban Development’s (HUD) Federal Housing Administration  (FHA) insures private lenders against losses from defaults on mortgages  (FHA) insures private lenders against losses from defaults on mortgages  that meet FHA criteria. FHA historically has been an important participant  that meet FHA criteria. FHA historically has been an important participant  in the market for home purchase mortgages, which grew from 3.1 million  in the market for home purchase mortgages, which grew from 3.1 million  loans in 1996 to 4.7 million loans in 2005. FHA in the past has played a  loans in 1996 to 4.7 million loans in 2005.companion report that we are issuing today.
Home purchase mortgages do not include mortgages for refinancing existing loans.
See GAO, Federal Housing Administration: Modernization Proposals Would Have  Program and Budget Implications and Require Continued Improvements in Risk  Management, GAO-07-708 (Washington, D.C.: June 29, 2007). segments. Prime borrowers typically have strong credit scores and obtain  the most competitive interest rates and mortgage terms. In contrast,  subprime borrowers typically have blemished credit and lower credit  scores, may have difficulty providing income documentation, and  generally pay higher interest rates and fees than prime borrowers.  Mortgages purchased by two government-sponsored enterprises (GSE),  Fannie Mae and Freddie Mac, comprise another, albeit overlapping,  market segment. The GSEs purchase (primarily conventional prime) loans  and pool them to create securities sold to investors. The GSEs have goals  directed at financing housing for lower-income families and in  underserved areas. FHA is a major part of the market segment comprising  loans with government insurance or guarantees, which primarily serves  borrowers who would have difficulty obtaining conventional prime  mortgages. The borrowers are allowed to make very low down payments  and generally pay interest rates that are competitive with prime mortgages  but also pay fees or premiums to cover the cost of the guaranty.
To provide insights into FHA’s role in the mortgage market, this report  discusses (1) trends in FHA’s share of the market for home purchase  mortgages and selected submarkets from 1996 through 2005, and how they  compared with the trends for the prime, subprime, and GSE market  segments; and (2) the major factors associated with the trends in FHA’s  market share and the implications of these trends for homebuyers and  FHA. In addition, appendix III of this report provides information on  selected borrower and loan characteristics of FHA mortgages and  mortgages in the prime and subprime market segments.
To analyze trends in the overall market for home purchase mortgages, we  compiled and analyzed loan data for 1996 through 2005 collected under the  Home Mortgage Disclosure Act (HMDA). HMDA requires lending  institutions to collect and publicly disclose information about housing  loans and applications for such loans. HMDA data capture about 80  percent of the mortgage loans funded each year, according to estimates by  the Board of Governors of the Federal Reserve System (Federal Reserve),  and are one of the most comprehensive sources of information on  mortgage lending. HMDA data have a number of limitations that affected  our analysis. More specifically, the data (1) understate the number of loans  purchased by the GSEs, (2) do not include a precise indicator for subprime  loans, and (3) do not distinguish first mortgages from “piggyback” loans  (i.e., the junior lien in a pair of loans used to finance the same property)  for most of the period we examined. While we acknowledge these  limitations, we used HMDA data to evaluate long-term market share trends  rather than to provide precise annual figures for each market segment,  including the GSE segment. According to Freddie Mac, Fannie Mae, and  Federal Reserve officials, our use of HMDA data was appropriate for this  purpose. We identified subprime loans by merging the data with a HUD- maintained list of lenders that specialize in subprime lending. We  identified piggyback loans using a data matching process based on an  algorithm developed by the Federal Reserve and excluded these loans  from our analysis. To analyze trends in various submarkets, we  incorporated additional data from FHA, the Census Bureau, the Office of  Federal Housing Enterprise Oversight, and TransUnion. To determine the  factors associated with the trends in FHA’s market share and the potential  implications of these trends, we analyzed HMDA data, information from  HUD’s Single-Family Data Warehouse (SFDW), the Mortgage Bankers  Association’s (MBA) National Delinquency Survey, and summary statistics  provided by FHA and contained in prior studies from databases  maintained by LoanPerformance. We also reviewed literature, analyzed  agency documents, and interviewed FHA officials, mortgage industry  participants, and academic researchers. To determine borrower and loan  characteristics for different market segments, we analyzed HMDA data,  information from SFDW and the Federal Housing Finance Board, and  summary LoanPerformance data. Appendix I contains additional  information on our scope and methodology. We conducted our work in  Washington, D.C., from September 2006 through May 2007 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Congress established FHA in 1934 under the National Housing Act (P.L. 73- 479) to broaden homeownership, protect and sustain lending institutions,  and stimulate employment in the building industry. Over time, FHA came  to play a major role in extending mortgage credit to first-time homebuyers  and historically underserved borrowers such as minority and lower- income families. For example, in 2005, slightly less than 80 percent of FHA  borrowers were first-time homebuyers, more than 80 percent had lower  incomes, and approximately 30 percent were minorities. (See app. III for  additional information on the borrower and loan characteristics of FHA- insured, prime, and subprime mortgages.) FHA currently insures a variety  of mortgages for home purchases, construction and rehabilitation, and  refinancing, with its most popular program—Section 203(b)—offering 15-  and 30-year mortgages for single-family dwellings.
Generally, borrowers are required to purchase mortgage insurance when  the loan-to-value (LTV) ratio (the amount of the mortgage loan divided by  the value of the home) exceeds 80 percent. FHA is a government mortgage  insurer in a market that also includes private insurers. Private mortgage  insurance policies provide lenders coverage on a portion (generally 20 to  30 percent) of the mortgage balance. However, borrowers who have  difficulty meeting down-payment and credit score requirements for  conventional loans may find it easier to qualify for a loan with FHA  insurance, which covers 100 percent of the value of the loan. FHA-insured  borrowers are required to make minimum cash investments of 3 percent,  which may come from the borrowers’ own funds or from certain third- party sources. Borrowers are permitted to finance their mortgage  insurance premiums and some closing costs, which can create an effective  LTV ratio of close to 100 percent for some FHA-insured loans. In fiscal  year 2006, the agency insured almost 426,000 mortgages, representing  about $55 billion in mortgage insurance.
Congress has set limits on the size of the loans that may be insured by  FHA. The limit for an FHA-insured mortgage is 95 percent of the local  median home price, not to exceed 87 percent or fall below 48 percent of  the Freddie Mac conforming loan limit, which was $417,000 in 2006.  Therefore, in 2006, FHA loan limits fell between a floor in low-cost areas  of $200,160 and a ceiling in high-cost areas of $362,790. Eighty-two percent  of counties nationwide had loan limits set at the low-cost floor, while 3  percent had limits set at the high-cost ceiling. The remaining 15 percent of  counties had limits set between the floor and ceiling, based on local  median house prices.
FHA determines the expected cost of its insurance program, known as the  credit subsidy cost, by estimating the program’s future performance.  FHA’s mortgage insurance program is currently a negative subsidy  program, meaning that the present value of estimated cash inflows to  FHA’s Mutual Mortgage Insurance Fund (Fund) exceeds the present value  of estimated cash outflows. The economic value, or net worth, of the Fund  depends on the relative size of cash outflows and inflows over time. Cash  flows out of the Fund for payments associated with claims on defaulted  loans and refunds of up-front premiums on prepaid mortgages. To cover  these outflows, FHA receives cash inflows from borrowers’ insurance  premiums and net proceeds from recoveries on defaulted loans. If the  Fund were to be exhausted, the U.S. Treasury would have to cover  lenders’ claims directly.
A number of different private-sector and government institutions  participate in the mortgage market. Along with FHA, the Department of  Veterans Affairs’ (VA) Loan Guaranty Service and the Department of  Agriculture’s Rural Housing Service (RHS) administer federal government  programs that insure or guarantee single-family mortgages made by  private lenders. Private lenders that loan borrowers funds for home  purchase and refinance mortgages often work with mortgage brokers,  independent contractors that originate the loan products of multiple  lenders. Fannie Mae and Freddie Mac are housing GSEs that purchase  primarily prime conventional mortgages from lenders across the country,  financing their purchases through borrowing or by issuing securities  backed by the mortgages. Since 1994, HUD has set affordable housing  goals for the housing GSEs and has adjusted the goals upward every few  years. One goal is that at least 55 percent of the mortgages purchased by  the GSEs must be made to families whose incomes are no greater than the  area median income. The other two major goals concern the percentage of  mortgages to borrowers residing in lower-income communities and certain  high-minority neighborhoods (38 percent) and the percentage of  borrowers with very low incomes and those with low incomes who live in  low-income areas (25 percent).
section_title: FHA’s Market Share Declined from 1996 through 2005, While the Conventional Market Share Increased, Especially among Minority and Lower-Income Borrowers
paragraphs: FHA’s share of the market for home purchase mortgages in terms of  numbers of loans declined 13 percentage points from 1996 through 2005,  while the prime share increased slightly and the subprime share grew 13  percentage points. Although the decline in FHA’s market share was broad- based, FHA experienced particularly sharp decreases in submarkets where  it traditionally has had a strong presence, such as among minority and  lower-income borrowers. Consistent with these trends, in geographic  areas with higher concentrations of these borrowers, FHA lost substantial  market share while the subprime share grew dramatically. The same  pattern held true in areas with relatively low median credit scores and  where median home prices rose to at least 75 percent of FHA’s loan limit  during the 10-year period.
subsections: section_title: FHA’s Market Share Decreased While Conventional Market Share, Particularly for Subprime Loans, Grew
paragraphs: From 1996 through 2005, FHA’s share of the home purchase mortgage  market declined while the conventional share increased. As shown in  figure 1, FHA’s market share fell from almost 19 percent (about 583,000  loans) in 1996 to about 6 percent (about 295,000 loans) in 2005, with  almost all of the decline occurring after 2001. Although FHA’s market  share has fluctuated over time, during the past two decades it has  generally been over 10 percent.
Over the 10-year period, the market share for conventional mortgages rose  from almost 75 percent (about 2.3 million loans in 1996) to about 91  percent (about 4.2 million loans in 2005), with much of the increase due to  growth in subprime lending. More specifically, prime market share  increased from 73 percent to 76 percent overall, falling somewhat from  1996 through 2000 but then increasing about 5 percentage points after  2000. Subprime market share increased substantially over the 10-year  period, from 2 percent to 15 percent, with most of the increase occurring  after 2001 (growing from 5 percent in 2001 to 15 percent in 2005). From  1996 through 2005, the market share for the GSEs (essentially a subset of  the conventional prime market) increased 3 percentage points overall (to  roughly 30 percent in 2005), growing about 13 percentage points from 1996  through 2002 but falling 9 percentage points thereafter.
section_title: Especially among Black, Hispanic, and Lower- Income Borrowers, FHA’s Market Share Declined Sharply and the Subprime Share Increased
paragraphs: From 1996 through 2005, FHA lost market share in certain key  submarkets, especially among minority and lower-income borrowers, as  well as among borrowers with mortgages within FHA’s loan limits. At the  same time, the market share for conventional mortgages, particularly  subprime loans, grew in these submarkets. This trend also held true in  census tracts with high concentrations of low-income and minority  households, relatively low median credit scores, and median home prices  within FHA’s loan limits. Mirroring the trend in the overall home purchase  mortgage market, FHA’s loss of market share in these submarkets  primarily occurred after 2001. (See app. II for details on the trends in  specific submarkets for each market segment)
subsections: section_title: Racial Submarkets
paragraphs: FHA traditionally has played a major role among minority borrowers.  However, over the 10-year period, FHA’s share of this submarket fell  substantially. Specifically, as shown in figure 2, FHA’s market share  dropped 25 percentage points (from 32 to 7 percent) among minority  borrowers, but declined most sharply among black and Hispanic  borrowers (by 27 and 35 percentage points, respectively). FHA’s market  share among white borrowers decreased from 16 percent to 7 percent  during the 10-year period.
In contrast to FHA, prime market share increased about 6 percentage  points (from 59 to 65 percent) among minority borrowers and 5  percentage points (from almost 77 to just over 81 percent) among white  borrowers from 1996 through 2005. Over the same period, subprime  market share increased 24 percentage points (from 2 to 26 percent) among  minorities, but especially among black and Hispanic borrowers (29  percentage points for each group). Subprime market share among white  borrowers increased from 1 to 9 percent from 1996 through 2005. GSE  market share among minority borrowers ultimately did not change  substantially, beginning and ending the period at roughly 20 percent. From  1996 through 2002, GSE market share among minority borrowers  increased 11 percentage points (to roughly 32 percent), but fell by about  the same amount thereafter. GSE market share among white borrowers  increased 7 percentage points over the 10-year period, to roughly 35  percent in 2005.
section_title: Income Submarkets
paragraphs: Lower-income (i.e., low- and moderate-income) borrowers historically  have relied heavily on FHA products, but FHA’s market share dropped in  this submarket as well. From 1996 through 2005, FHA’s market share  decreased among borrowers of all income levels, but, as shown in figure 3,  particularly among lower-income borrowers, where FHA’s share declined  16 percentage points (from 26 percent to 10 percent). From 1996 through  2005, FHA’s market share among upper-income borrowers fell from 9 to 2  percent.
Over the 10-year period, prime market share increased from 65 to 72  percent among lower-income borrowers and remained consistently high  (above 80 percent) among upper-income borrowers. At the same time,  subprime market share increased 14 percentage points (from 1 to 15  percent) among lower-income borrowers and 12 percentage points (from 2  to 14 percent) among upper-income borrowers. GSE market share  increased 8 percentage points among lower-income borrowers (to roughly  32 percent in 2005), and remained at approximately 30 percent for upper- income borrowers.
section_title: FHA-Eligible Submarket
paragraphs: As previously noted, Congress has set limits on the size of FHA-insured  loans. Although loans that fall within these limits comprise what has been  called the FHA-eligible submarket, from 1996 through 2005 FHA’s share in  this submarket declined more sharply than in the overall home purchase  mortgage market. Specifically, it decreased 16 percentage points (from 25  to 9 percent), with a steep decline occurring after 2001 when its market  share was 24 percent. FHA’s market share among minority borrowers in  this submarket also fell dramatically (from 39 percent in 1996 to 10  percent in 2005), as did its share of loans to lower-income borrowers  (from 28 percent in 1996 to 11 percent in 2005).
While FHA’s market share declined in the FHA-eligible submarket, the  prime and subprime market shares grew. Overall, the prime share in this  submarket increased modestly (from 67 percent to 73 percent) from 1996  to 2005. In contrast, the subprime share increased 14 percentage points  (from 1 percent to 15 percent). The GSE share in this submarket increased  15 percentage points from 1996 to 2002 (to roughly 40 percent) but fell to  about 33 percent as of 2005.
section_title: Census Tracts Groupings Characterized by Population Characteristics and House Prices
paragraphs: To further analyze mortgage market trends, we examined FHA, prime, and  subprime market shares in various census tract groupings. Specifically,  we looked at census tracts grouped based on (1) race and income  characteristics, (2) median credit score, and (3) median home price in  relation to FHA loan limits. For the credit score analysis, we limited our  analysis to census tracts where FHA’s market share averaged at least 5  percent from 1996 through 1998 (representing about 75 percent of the  census tracts nationwide).
From 1996 through 2005, FHA lost market share in approximately 90  percent of the census tracts we included in our analysis. As shown in  figure 4, the losses occurred primarily in census tracts with both medium  to high concentrations of minorities and low to moderate median  incomes. At the same time, the market share for conventional loans  increased for this group of census tracts, especially for subprime loans.  This was particularly evident in census tracts with both the highest  concentrations of minorities and low median incomes, where FHA’s  market share fell 31 percentage points and subprime market share  increased 28 percentage points.
From 1996 through 2005, FHA’s market share declined in all of the census  tract groupings we defined based on the median credit score of mortgage  borrowers. However, FHA’s share declined most sharply in census tracts  with relatively low median credit scores. Specifically, FHA’s market share  dropped 26 percentage points (from about 37 percent in 1996 to 11 percent  in 2005) in census tracts with median credit scores in the bottom quarter  of the credit score distribution for all census tracts included in our  analysis, with the steepest decline occurring after 2001 (see fig. 5). At the  same time, the prime and subprime market shares in these census tracts  increased. More specifically, the prime share increased 12 percentage  points (from about 51 percent in 1996 to 63 percent in 2005), and the  subprime share increased 21 percentage points (from about 2 percent in  1996 to 23 percent in 2005). In census tracts with median credit scores  between the bottom quarter and the top quarter of the distribution, FHA’s  market share fell 16 percentage points over the 10-year period, while the  prime and subprime shares rose 10 and 12 percentage points, respectively.  Finally, in census tracts with median credit scores in the top quarter of the  distribution, FHA’s market share decreased 12 percentage points, while  the prime and subprime shares increased 9 and 7 percentage points,  respectively.
From 1996 through 2005, FHA lost market share in census tracts where  median home prices were above and below FHA’s loan limits (which FHA  adjusts annually within statutory caps), but experienced the greatest  losses in census tracts where median home prices appreciated to at least  75 percent of FHA’s loan limit during the 10-year period. In census tracts  where the median home price was less than 75 percent of the FHA loan  limit each year, FHA’s market share dropped 24 percentage points (from  36 percent in 1996 to 12 percent in 2005). In census tracts where the  median home price was at least 75 percent but less than 125 percent of the  FHA loan limit each year, FHA’s market share fell more modestly—13  percentage points (from 18 percent in 1996 to 5 percent in 2005). However,  FHA lost almost all of its market share in areas where the median home  price was less than 75 percent of the FHA loan limit early in the 10-year  period but grew to at least 75 percent of the loan limit later in the period.
Specifically, FHA’s market share in these areas fell 38 percentage points— from 41 percent in 1996 to 3 percent in 2005.
At the same time, conventional market share grew in the census tract  groupings we examined. For example, in census tracts where median  home prices were less than 75 percent of FHA’s loan limit each year, the  prime share increased 11 percentage points (from 53 percent in 1996 to 64  percent in 2005) and the subprime share increased 18 percentage points  (from 2 percent in 1996 to 20 percent in 2005). The prime and subprime  market shares increased even more in census tracts where median home  prices rose from less than 75 percent of the FHA loan limit to at least 75  percent of the limit during the 10-year period. Specifically, prime and  subprime shares increased 22 and 25 percentage points, respectively.
section_title: The Decline in FHA’s Market Share Was Associated with Several Factors and Has Been Accompanied by Higher Costs for Certain Conventional Borrowers and Increased Credit Risk for FHA
paragraphs: During the period from 1996 through 2005, a combination of factors  created conditions that favored conventional mortgages over FHA  products. These factors included (1) FHA’s product restrictions and lack  of process improvements relative to the conventional market and (2)  product innovations and expanded loan origination and funding channels  in the conventional market. Most subprime mortgages, which grew in  popularity as FHA’s market share declined, had higher ultimate costs, in  part because their initial interest rates could reset to higher rates. In  addition, subprime mortgages performed worse than prime and FHA- insured loans. As FHA’s market share fell, certain factors associated with  this decline also contributed to a worsening in indicators of credit risk  among FHA borrowers.
subsections: section_title: FHA’s Process Inefficiencies and Product Restrictions Have Been Linked to the Decline in Use of FHA-Insured Mortgages
paragraphs: Lenders, mortgage industry groups, and consumer advocacy groups have  cited FHA administrative requirements as a factor that contributed to the  decline in the agency’s market share over the 10-year period we examined.  According to mortgage industry officials we interviewed, processing FHA- insured loans was more time consuming, labor intensive, and costly than  processing conventional mortgages. For example, instead of having  lenders submit all loan information electronically, FHA required lenders to  send loan case files to FHA for review before the loans could be approved  for insurance. If the review found a problem with the case file, FHA would  mail the file back to the lender, who in turn would make the needed  corrections and mail the file back to FHA. Additionally, in contrast to  conventional market requirements, FHA’s appraisal process required that  minor property repairs, such as cracked window panes, be corrected prior  to loan closing. According to the MBA, some FHA lenders have reported  substantially higher processing times and origination costs for FHA- insured loans than for conventional loans. In contrast with FHA,  conventional loan processing became increasingly streamlined and less  costly through the use of information technology and the Internet.  According to mortgage industry officials with whom we spoke, FHA’s  more cumbersome processes made FHA’s products less attractive than  conventional products, particularly in competitive housing markets where  it is important to be able to close on a home quickly.
However, in 2006, FHA made several administrative changes, such as  allowing higher-performing lenders to approve FHA insurance without a  prior review by FHA and simplifying its appraisal process. FHA and  mortgage industry officials with whom we spoke said that these changes  have increased the efficiency of loan and insurance processing, making  FHA products more attractive and, therefore, more likely to be used.
FHA and mortgage industry officials with whom we spoke also cited  FHA’s loan limits as a factor that contributed to the decline in FHA’s  market share. In some areas of the country, particularly in parts of  California and the Northeast, median home prices have been substantially  higher than FHA’s maximum loan limits, reducing the agency’s ability to  serve borrowers in those markets. For example, the 2005 loan limit in  high-cost areas was $312,895 for one-unit properties, while the median  home price was about $399,000 in Boston, Massachusetts; about $432,000  in Newark, New Jersey; $500,000 in Salinas, California; and about $646,000  in San Francisco, California.
Some mortgage industry officials also pointed to other product restrictions  as a reason why FHA loans have been less competitive than conventional  loans. Many borrowers either cannot or do not want to make a down  payment, and in recent years members of the conventional mortgage  market (such as private mortgage insurers, the housing GSEs, and large  private lenders) have been increasingly active in supporting low and no- down-payment mortgages. For example, the GSEs introduced no-down- payment mortgage products in 2000. In contrast, FHA does not offer a  zero-down-payment product, which some lenders and industry observers  have cited as a major factor underlying the decline in FHA’s market share.  (However, as previously noted, FHA allows borrowers to finance their up- front insurance premium and some closing costs; as a result, an FHA- insured loan could equal nearly 100 percent of the property’s value or sales  price.)
section_title: Developments in Conventional Market Products and Processes Occurred as FHA’s Market Share Declined
paragraphs: During the 10-year period we examined, several developments associated  with FHA’s declining market share occurred in the conventional market.  First, the conventional market offered products that increased consumer  choices for borrowers, including those who may have previously chosen  an FHA-insured loan. These products, in combination with historically low  interest rates, made it easier for homebuyers to purchase homes in a  period of strong house price appreciation. For example, to serve the  lower-income and minority populations targeted by their affordable  housing goals, the GSEs developed products featuring underwriting  criteria that allowed for higher risks, such as Freddie Mac’s Home  Possible® Mortgage, which allows qualified borrowers to make no down  payment. As the GSEs worked to meet their goals, their market share  among lower-income and minority borrowers grew over much of the 10- year period we examined, while FHA’s fell. More specifically, the GSE  market share among lower-income borrowers grew nearly 14 percentage  points from 1996 through 2002, while FHA’s share dropped 3 percentage  points over that period. During the same time frame, GSE market share  among minority borrowers grew 11 percentage points, while FHA’s fell 8  percentage points. Consistent with these observations, research by An and  Bostic (2006) found a significant negative relationship between the change  in the GSE and FHA shares of the overall mortgage market from 1996  through 2000. However, as previously noted, the market shares for both  FHA and the GSEs ultimately declined after 2002.
Other products offered by conventional mortgage providers—interest-only  loans, no- and low-documentation mortgages, piggyback loans, and hybrid  adjustable rate mortgages (ARM)—also became popular, especially during  the subprime market’s rapid growth after 2001, because they featured  flexible payment and interest options that increased initial affordability.  For example, borrowers were attracted to hybrid ARMs because they  could qualify on the basis of an interest rate at or near the initial rate  rather than the higher reset rate. These nontraditional products came to  represent a sizeable part of the subprime market after 2001. For example,  according to data reported by an investment bank, from the first quarter of  2002 to the third quarter of 2005, the percentage of subprime mortgages  that were interest-only loans increased from zero to 29 percent and the  percentage that were no- and low-documentation loans increased from 30  to 41 percent. Over the same period, the proportion of subprime  mortgages with piggyback loans, which are often used to avoid the need  for mortgage insurance, increased from 2 to 33 percent. Additionally,  from 2002 through 2005, the percentage of subprime mortgages that were  ARMs grew from 68 to 73 percent, with hybrid ARMs accounting for the  majority of these loans. In contrast, FHA (which, as previously discussed,  lost substantial market share in submarkets where subprime lending grew  dramatically) does not offer interest-only or no- and low-documentation  products and did not begin insuring hybrid ARMs until 2004.
A second development in the conventional market was advances in  underwriting technology that allowed conventional mortgage providers to  process loan applications more quickly and consistently than in the past  and broaden their customer base. For example, to help assess the default  risk of borrowers, the mortgage industry increasingly used mortgage  scoring and automated underwriting systems. Mortgage scoring is a  technology-based tool that relies on the statistical analysis of millions of  previously originated mortgage loans to determine how key attributes  such as the borrower’s credit history, property characteristics, and terms  of the mortgage affect future loan performance. FHA implemented its own  mortgage scoring tool, called the Technology Open to Approved Lenders  (TOTAL) scorecard, in 2004. However, in prior work we found that the  way FHA developed TOTAL may limit the scorecard’s effectiveness. To  the extent that conventional mortgage providers were better able than  FHA to use scoring tools, lower-risk borrowers in FHA’s traditional market  segment may have migrated toward conventional products, contributing to  the decline in FHA’s market share.
A third development was an increase in mortgage originations through  third parties such as loan correspondents and mortgage brokers,  particularly in the subprime market. This trend has been associated with  the decline in FHA’s market share because these mortgage originators  primarily market non-FHA products. According to data reported by the  trade publication Inside B&C Lending, loan correspondents and mortgage  brokers increased their share of subprime loan originations from 66  percent in 2003 to 81 percent in 2005. In contrast, just 27 percent of FHA- insured mortgages in 2005 were originated by loan correspondents and  mortgage brokers. According to the National Association of Mortgage  Brokers, many mortgage brokers do not offer FHA products because they  find the financial and audit requirements for participation in FHA  programs cost-prohibitive.
A fourth development in the conventional market was the growth in  private mortgage securitization (the bundling of mortgage loans into bond- like securities that can be bought and sold on the secondary market),  particularly for subprime loans. Securitization allowed lenders to sell  loans from their portfolios, transferring credit risk to investors, and use  the proceeds to make more loans. According to recent testimony by a  senior official from the Federal Deposit Insurance Corporation, many  lenders would not have found subprime mortgages attractive absent the  funding and credit-risk transfer features available through securitization.  At the same time, these securities were attractive to different types of  investors. The combination of higher interest rates and higher risks for  subprime loans facilitated the division of mortgage securities into risk  tranches, which offer investors different risk and reward options.  According to data reported by Inside B&C Lending, from 1999 through  2005, subprime securitization rates—that is, the dollar amount of  securitized loans divided by the dollar amount of loan originations—rose  from less than 40 percent to about 80 percent. In addition, the dollar  volume of subprime loan securitizations increased from $61 billion in 1999  to nearly $508 billion in 2005.
section_title: As FHA Lost Market Share, Many Subprime Borrowers Obtained Loans with High Ultimate Costs and Credit Characteristics among FHA Borrowers Worsened
paragraphs: As a result of developments in the conventional market, including lower  interest rates, more homebuyers—especially minority and lower-income  families—were able to obtain conventional loans, but many of these loans  had high ultimate costs. As previously discussed, much of the increase in  mortgages to minorities and lower-income borrowers was due to the  growth in subprime lending, and many of these loans offered lower initial  costs through their interest-only features and low introductory interest  rates. However, these mortgages became more costly as the interest rates  on many of these loans reset to higher rates, typically 2 to 3 percentage  points higher in a relatively short time period. A common subprime  mortgage product is a 2/28 hybrid ARM, which features a fixed interest  rate for 2 years, followed by a series of resets up to a fully indexed  adjustable rate for the remaining 28 years of the loan. Consider the  example of a borrower who took out a $166,000 2/28 loan in 2003 with an  initial interest rate of 7.5 percent and a first interest rate reset of 2.5  percentage points. During the first 2 years of the loan, the borrower’s  monthly payment was $1,161. But after the first interest rate reset, the  borrower’s monthly payment grew to $1,446, a $285 or 25 percent  increase. Additional resets up to the fully indexed interest rate—which  can be as much as 6 percentage points higher than the initial interest  rate—would push the borrower’s payments even higher. In contrast to the  subprime market, the large majority of FHA-insured loans are fixed-rate  mortgages. For example, fixed-rate loans accounted for 92 percent of FHA- insured mortgages made in 2005. Additionally, for FHA-insured hybrid  ARMs, the allowable interest rate adjustments after the initial fixed-rate  period are comparatively lower—1 percentage point for 3-year ARMs and  2 percentage points for 5-, 7-, and 10-year ARMs.
Reflecting in part the generally lower credit scores of subprime borrowers,  subprime mortgages are more likely than prime or FHA loans to be what  the Federal Reserve has designated “high-priced” loans. HMDA data for  the 2 most recent years available (2004 and 2005) include an indicator for  such loans. This indicator is based on a loan’s annual percentage rate  (APR), which represents the cost of credit to the consumer by capturing  the contract interest rate on a loan, the points and fees that a consumer  pays, and other finance charges such as mortgage insurance premiums.  Loans with APRs at least 3 percentage points higher than the rate on  Treasury securities of comparable maturity are considered high-priced.  Our analysis of 2005 HMDA data indicates that approximately 90 percent  of the loans we had identified as subprime were high-priced. In contrast,  less than 2 percent of FHA-insured loans made that year were high-priced.
Highly leveraged and weaker credit borrowers—the typical subprime  borrowers who have obtained nontraditional mortgage products such as  hybrid ARMs—are the most vulnerable to payment shocks. Although  borrowers could avoid mortgage resets by refinancing to fixed-rate  mortgages, many of these borrowers face challenges to refinancing their  subprime loans. For example, about two-thirds of subprime loans  originated in 2005 had prepayment penalties—a substantially higher  proportion than in other market segments. FHA, for instance, does not  permit prepayment penalties on the loans it insures. Prepayment penalties  generally last from 2 to 4 years from the mortgage origination date and can  amount to 4 to 5 percent of the original loan amount. They can make it  expensive to refinance because borrowers must pay the penalty if they  wish to pay off the original loan before the prepayment period expires. In  addition, subprime borrowers who made little or no down payment and  live in areas that experienced home price depreciation may not have  sufficient equity to refinance.
Borrowers who obtained subprime mortgages have experienced relatively  high rates of default (i.e., more than 90 days past due) and foreclosure  (i.e., in any stage of the foreclosure process). According to MBA, as of  December 31, 2006, the cumulative default and foreclosure rates for all  subprime mortgages were 7.78 and 4.53 percent, respectively. For  subprime ARMs, the corresponding figures were 9.16 and 5.62 percent. In  comparison, as of the same date, the default and foreclosure rates for  FHA-insured loans were 5.78 and 2.19 percent, respectively (6.62 and 2.54  percent for ARMs) and for prime loans, were 0.86 and 0.50, respectively  (1.45 and 0.92 for ARMs).
Some mortgage industry researchers predict that subprime default and  foreclosure rates likely will worsen as the loans age; a substantial portion  of these loans have yet to reach the age when loans tend to experience the  highest rates of default and foreclosure—between 4 and 7 years.  Furthermore, because most recent subprime loans have adjustable-rate  features, default and foreclosure rates for ARMs are in particular danger of  increasing as interest rate resets cause monthly mortgage payments on  these loans to rise. A recent study by the director of research and analytics  at First American CoreLogic (one of the largest private sector providers of  mortgage information) illustrates the potential scope of the problem posed  by ARM resets. The study, which examined 8.37 million ARMs originated  in 2004 through 2006, estimated that 1.1 million (13 percent) of these loans  would go into foreclosure as they reset over the next 6 to 7 years.
Although the subprime and FHA market segments both serve higher-risk  borrowers, the extent to which subprime borrowers currently at risk of  default would have qualified for FHA-insured loans is not known. Such a  determination would require analysis of detailed, loan-level data for  subprime mortgages. Recently, a number of proposals have been made to  help subprime borrowers at risk of foreclosure refinance into lower-cost  fixed rate mortgages. For example, in April 2007, Freddie Mac announced  plans to purchase $20 billion in mortgages that would refinance troubled  subprime loans. Fannie Mae announced a similar initiative that same  month.
Certain factors associated with FHA’s decline in market share also  contributed to a worsening in indicators of credit risk among FHA  borrowers. More specifically, as conventional lenders expanded their  presence in traditional FHA submarkets through the development of new  products and use of automated underwriting tools, FHA experienced  adverse selection—that is, conventional providers identified and approved  relatively lower-risk borrowers, leaving relatively higher-risk borrowers  for FHA. According to analysis by FHA, FHA’s loan portfolio is becoming  riskier in terms of the proportions of loans with high LTV, payment-to- income, and debt-to-income ratios. (Lenders use these ratios to assess the  creditworthiness of borrowers.) For instance, FHA’s analysis indicated  that the proportion of loans with effective LTV ratios over 97 percent rose  from about 40 percent in 1999 to almost 60 percent in 2005. The higher the  LTV ratio, the less equity borrowers have in their homes and the more  likely it is that they may default on mortgage obligations. As we reported  in November 2005, the substantial portion of FHA-insured loans with  down-payment assistance do not perform as well as loans without such  assistance, due partly to homebuyers having less equity in the  transaction. The changes in borrower characteristics have contributed to  a decline in FHA’s financial performance. In recent years, the credit  subsidy rate for FHA’s single-family mortgage insurance program has  approached zero (the point at which estimated cash outflows equal  estimated cash inflows). Furthermore, FHA has estimated that, absent  program changes, the program for the first time would require a positive  subsidy (i.e., appropriations) in fiscal year 2008. Therefore, it has been  changes in the credit quality, rather than the volume, of loans FHA insures  that have had the most significant implications for FHA.
section_title: Observations
paragraphs: Our analysis shows that in 2005 FHA was a much smaller part of the  market for home purchase mortgages than it was just a few years earlier.  Given FHA’s history of serving minority and lower-income homebuyers,  the agency’s sharp drop-off in market share among these populations is  particularly notable. Furthermore, the growth in low- and no-down- payment mortgages offered by conventional lenders has made FHA’s  product offerings less distinct. These trends raise questions about FHA’s  ability to fulfill its traditional role and operate successfully in a changing  and competitive mortgage market. However, consistent with FHA’s  mission, substantial proportions of recent FHA borrowers are minorities  and lower-income families, including many first-time homebuyers.  Additionally, in the event of an economic downturn, FHA could help  ensure the flow of mortgage credit to areas that private sector market  participants may be reluctant to serve. Furthermore, recent developments  in the subprime market may result in an increase in FHA’s role in the  mortgage market. For example, relatively high default and foreclosure  rates for subprime mortgages and a contraction of this market segment  could shift market share to FHA. The extent to which this occurs will  depend partly on the efforts of conventional mortgage providers, including  Freddie Mac and Fannie Mae, to provide alternatives to subprime  borrowers. As our report noted, the GSEs have played a larger role among  traditional FHA homebuyers and recently have proposed steps that would  provide additional mortgage choices to many borrowers who obtained  subprime loans.
Although further analysis would be required to determine how many  subprime borrowers at risk of default would qualify for FHA-insured  mortgages, FHA could be a vehicle to provide lower-priced and more  sustainable mortgage options for some borrowers who are considering or  struggling to maintain higher-priced subprime loans. FHA’s recent efforts  to modernize its products and processes might facilitate any expansion of  the agency’s role by increasing its operational efficiency and flexibility.  However, attracting subprime borrowers to FHA could also have costs, as  some of these borrowers may pose relatively high insurance risks. Careful  assessment and management of these risks would be necessary to avoid  exacerbating problems in the financial performance of FHA’s insurance  program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided HUD with a draft of this report. HUD provided comments in a  letter from the Assistant Secretary for Housing-Federal Housing  Commissioner (see app. IV). HUD stated that we produced a  straightforward, well-researched report on the reasons for the recent  decline in FHA’s market share.
HUD also provided observations about the homebuyers FHA serves and  the shift of some traditional FHA borrowers to subprime mortgage  products that have the potential to become more costly. Additionally, HUD  noted that additional flexibility, new mortgage insurance products, and  risk-based pricing would help FHA to continue providing lower-income  and minority households with homeownership opportunities at lower risk  to themselves and with manageable risk to FHA’s insurance fund.
We are sending copies of this report to the Chairman, Senate Committee  on Banking, Housing, and Urban Affairs; Chairman and Ranking Member,  Subcommittee on Housing and Transportation, Senate Committee on  Banking, Housing, and Urban Affairs; Chairman and Ranking Member,  House Committee on Financial Services; and Chairman and Ranking  Member, Subcommittee on Housing and Community Opportunity, House  Committee on Financial Services. We will also send copies to the  Secretary of Housing and Urban Development and to other interested  parties and make copies available to others upon request. In addition, the  report will be made available at no charge on the GAO Web site at  http://www.gao.gov.
Please contact me at (202) 512-8678 or shearw@gao.gov if you or your staff  have any questions about this report. 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 V.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) trends in the Federal Housing  Administration’s (FHA) share of the market for home purchase mortgages  and selected submarkets from 1996 through 2005, and how they compared  with the trends for the prime, subprime, and government-sponsored  enterprises (GSE) market segments; and (2) the major factors associated  with the trends in FHA’s market share and the potential implications of  these trends for homebuyers and FHA. To supplement this analysis, we  also developed information on the borrower and loan characteristics of  FHA-insured mortgages and mortgages in the prime and subprime market  segments from 1996 through 2005 (see app. III).
subsections: section_title: Analysis of Market Share Trends
paragraphs: To analyze trends in the overall market for home purchase mortgages, we  compiled and analyzed loan data for 1996 through 2005 collected under the  Home Mortgage Disclosure Act (HMDA). HMDA data are compiled and  published by the Federal Financial Institutions Examination Council  (FFIEC). HMDA requires lending institutions to collect and publicly  disclose information about housing loans and applications for such loans.  This information includes, among other things, the market participant or  segment (conventional, FHA, Veterans Administration (VA), Rural Housing  Service (RHS), GSE), loan amount, property type, census tract and certain  tract characteristics, and loan applicant characteristics such as race,  gender, and income. HMDA data capture about 80 percent of the mortgage  loans funded each year, according to estimates by the Federal Reserve,  and are one of the most comprehensive source of information on mortgage  lending. In general, we limited our analysis to home purchase loans  originated for owner-occupied, one-to-four family and manufactured  homes. To the extent possible, we identified piggyback loans (i.e., the  junior lien in a pair of loans used to finance the same property) using a  data-matching process based on an algorithm developed by the Federal  Reserve and excluded these loans from our analysis. As a result, our  analysis focuses on first liens only. Because the HMDA data do not contain  an indicator for subprime loans, we identified subprime loans by merging  the data with a list—maintained by the Department of Housing and Urban  Development (HUD)—of lenders that specialize in subprime lending.  HUD’s Office of Policy Development and Research compiles this list  annually by analyzing HMDA data (e.g., lenders with lower origination  rates and a large share of refinance loans are more likely to be subprime  lenders) and contacting lenders directly. We designated conventional  loans that were not attributable to subprime lenders as prime loans.  However, because subprime specialists may originate some prime loans  and nonsubprime specialists may originate some subprime loans, any  analysis that uses this list will misclassify mortgages to some extent.  Finally, HMDA data do not capture all of the loans purchased by the GSEs.  According to GSE and Federal Reserve officials, HMDA data do not  capture all of the loans the GSEs purchase, including (1) many loans  initially sold to intermediaries (e.g., bank affiliates) and subsequently to  the GSEs and (2) loans originated and purchased in different years. While  we acknowledge these limitations, we used HMDA data to evaluate long- term market share trends rather than to provide precise annual figures for  each market segment, including the GSE segment. According to Freddie  Mac, Fannie Mae, and Federal Reserve officials, our use of HMDA data  was appropriate for this purpose. Our analysis should be interpreted with  these limitations in mind.
To analyze trends in various submarkets, we incorporated additional data  from FHA, the Census Bureau, the Office of Federal Housing Enterprise  Oversight (OFHEO), and TransUnion (one of the three main consumer  credit reporting agencies). More specifically, from FHA we obtained  annual nationwide data on FHA’s loan limits for single-family properties.  From the 2000 Decennial Census, we obtained information on the median  house price for each census tract. From OFHEO, we obtained their annual  house price appreciation index for all metropolitan statistical areas.  Finally, from TransUnion, we obtained median credit scores for mortgage  borrowers in each census tract nationwide as of December 31, 2004. We  analyzed a number of submarkets defined by borrower race, borrower  income, loan amount relative to FHA’s loan limits, income and minority  composition of the census tract in which the property was located, and  whether the property was owner-occupied. We defined borrower race  based on categories in the HMDA data. Prior to 2004, HMDA data included  Hispanic as a race category but beginning in 2004 also included Hispanic  as an ethnicity variable. For 2004 and 2005, we classified borrowers of  Hispanic ethnicity as Hispanic race. We created borrower income  categories using median family incomes calculated by HUD each year for  metropolitan and nonmetropolitan areas. We defined borrowers with  incomes of less than 80 percent of the area median income as low income,  those with incomes of at least 80 percent but less than 120 percent of the  area median as moderate income, and those with incomes of at least 120  percent of area median as upper income. Finally, we determined the FHA- eligible submarket by identifying loans with dollar amounts that fell within  the relevant FHA loan limit.
For our analysis of census tract groupings, we limited our examination to  census tracts where FHA’s market share averaged at least 5 percent from  1996 through 1998. (We took this approach because our analysis examined  changes in FHA’s market share during a 10-year period when the trend in  FHA’s share was downward.) Therefore, our analysis excluded census  tracts where FHA’s market share started and ended the period at zero and  census tracts where FHA’s market share was sporadic and on average very  small near the beginning of the period. We used Census Bureau files  relating 1990 census tract definitions to 2000 census tract definitions to  provide consistent geographic areas over the time period of our analysis.  The large majority of the census tracts were the same in both 1990 and  2000. In many cases, however, 1990 census tracts were split into more than  one 2000 census tract. In those cases, we aggregated the affected 2000  census tracts to the corresponding 1990 tract definitions and used the 1990  tracts as the unit of analysis for the entire 1996 through 2005 period. In  other cases, two or more 1990 census tracts were combined to form one  2000 census tract. In those instances, we aggregated the affected 1990  tracts that corresponded to the 2000 tract definitions and used the 2000  tracts as the unit of analysis over the entire period.
We grouped the census tracts according to the percentage of the  population that was minority, median income, median credit score, and  median home price in relation to FHA loan limits. We defined low-,  medium-, and high-minority census tracts as those with minority  populations of less than 20 percent, 20 to 49 percent, and more than 50  percent, respectively. We defined low-, moderate-, and upper-income  census tracts as those with median incomes that were less than 80  percent, at least 80 percent but less than 120 percent, and 120 percent and  above, respectively, of the median income for the associated metropolitan  statistical area. We also grouped census tracts based on the TransUnion  median credit score for mortgage borrowers as of December 31, 2004. We  categorized census tracts into three groups: those with median credit  scores in the bottom quarter of the credit score distribution for all census  tracts included in our analysis, those with median scores between the  bottom and top quarter, and those with median scores in the top quarter.  Finally, we created three census tract groupings based on whether the  median home price was below 75 percent of the applicable FHA loan limit  each year, 75 to 125 percent of the FHA limit each year, or below 75  percent of the loan limit at the beginning of the 10-year period but at or  above 75 percent of the limit later in the period.
We assessed the reliability of the data we used by reviewing existing  information about the quality of the data, performing electronic data  testing to detect errors in completeness and reasonableness, and  interviewing Freddie Mac, Fannie Mae, FHA, and Federal Reserve officials  knowledgeable about the data. We determined that the data were  sufficiently reliable for the purposes of this report.
section_title: Analysis of Factors Associated with the Trends in FHA’s Market Share and the Implications of These Trends
paragraphs: To analyze factors associated with the trends in FHA’s market share and  the implications of these trends, we used information from: the analysis  described in the previous section, HMDA data, HUD’s Single-Family Data  Warehouse (SFDW), summary statistics provided by FHA and contained in  prior studies from databases maintained by LoanPerformance, the  Mortgage Bankers Association’s (MBA) National Delinquency Survey for  the fourth quarter of 2006, and other published industry data. In order to  assess the reliability of the data we used, we reviewed related  documentation and interviewed officials familiar with the data. In  addition, for the HMDA and SFDW data, we performed internal checks to  determine the extent to which the data fields were populated and the  reasonableness of the values contained in the fields. We concluded that  the data were sufficiently reliable for the purposes of this report. We also  reviewed relevant academic literature and government and industry  studies, including internal FHA analysis of SFDW data.
In addition to our data analysis, we interviewed representatives of four  FHA lenders (Countrywide Financial, Wells Fargo, Bank of America, and  Lenders One—a mortgage cooperative representing 87 independent  mortgage bankers). We also interviewed officials from Fannie Mae,  Freddie Mac, and four private mortgage insurance companies—AIG  United Guaranty, Genworth Financial, Mortgage Guaranty Insurance  Corporation, and PMI Mortgage Insurance Company. Additionally, we  interviewed representatives of six mortgage and real estate industry  groups—MBA, National Association of Realtors, Mortgage Insurance  Companies of America, National Association of Home Builders, National  Association of Mortgage Brokers, and American Financial Services  Association. We also spoke with representatives of the following  consumer advocacy groups: Center for Responsible Lending, Consumer  Action, Consumer Federation of America, National Association of  Consumer Advocates, National Community Reinvestment Coalition,  National Consumer Law Center, and National Council of La Raza. Finally,  we interviewed officials from FHA and HUD’s Office of Policy  Development and Research.
section_title: Analysis of Borrower and Loan Characteristics
paragraphs: To determine the percentages of FHA, prime, and subprime home  purchase loans with certain borrower and loan characteristics each year  from 1996 through 2005, we analyzed information from HMDA data,  SFDW, the Federal Housing Finance Board, and summary  LoanPerformance data. The borrower and loan characteristics were race,  income, loan type (fixed or adjustable rate), and presence of prepayment  penalty. We also determined the average interest rate at mortgage  origination, loan amount, and median credit score for FHA-insured loans  and loans in the other market segments. In order to assess the reliability of  the data we used, we reviewed existing information about the data quality  and discussed the data with knowledgeable officials to ensure that we  interpreted the information correctly. For the HMDA and SFDW data, we  also performed electronic testing to assess the reasonableness and  completeness of the information. We concluded that the data were  sufficiently reliable for the purposes of our report.
We conducted this work in Washington, D.C. from September 2006  through May 2007 in accordance with generally accepted government  auditing standards.
section_title: Appendix II: Data on Market Share Trends in the Mortgage Market and Selected Submarkets from 1996 through 2005
paragraphs: This appendix contains the results of our analysis using Home Mortgage  Disclosure Act (HMDA) and Federal Housing Administration (FHA) data  for calendar years 1996 through 2005. Tables 1 through 3 provide  information on home purchase mortgages. More specifically, table 1  contains market shares for FHA and other market participants and  segments over the 10-year period. Table 2 contains FHA market shares and  numbers of mortgages in each state. Table 3 contains market shares in  selected submarkets for FHA and other market participants and segments.  Table 4 provides market shares for home purchase and refinance loans  combined. Finally, table 5 provides market shares for refinance loans.
section_title: Appendix III: Data on Selected Borrower and Loan Characteristics for FHA, Prime, and Subprime Loans, 1996 through 2005
paragraphs: This appendix contains the results of our analysis of Home Mortgage  Disclosure Act (HMDA) and Single-Family Data Warehouse (SFDW) data,  information from the Federal Housing Finance Board, and summary  LoanPerformance data. Specifically, tables 6, 7, and 8 contain information  on selected borrower and loan characteristics for Federal Housing  Administration (FHA)-insured, prime, and subprime loans. For prime and  subprime loans, data were not available from the sources we used for the  entire period we examined (1996 through 2005).
section_title: Appendix IV: Comments from the Department of Housing and Urban Development
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition, Steve Westley (Assistant Director), Triana Bash, Steve Brown,  John McGrail, Jeff Miller, Marc Molino, Barbara Roesmann, Richard  Vagnoni, and Jim Vitarello made key contributions to this report.