Jacqueline Gilbert | 10.31.06, Default Servicing News, http://www.dsnews.com/view_story.cfm?id=575

An independent study analysis conducted by George Mason University School of Public Policy has found conflicting results to research done previously by the Federal government. The HUD Office of the Inspector General and the U.S. Government Accountability Office released data arguing that FHA loans with nonprofit down payment assistance (NDPA) present perform worse when compared to FHA loans with other types of assistance, but according to this new data, that's not the case.

"The government studies try to assert that the use of nonprofit down payment assistance automatically lead to foreclosure. The evidence just does not support that assessment," said Ann Ashburn, President and CEO of AmeriDream, Inc., a non-profit organization that offers affordable housing opportunities. "Their conclusions fall short of their data and methodology. Amazingly, the government studies failed to include two key factors in their studies."

The two key factors Ashburn argues were missing when noting whether or not a loan is defaulted or goes to claim were: (i) the financial situation of the borrower and (ii) the economic conditions of the area in which the home is located.

Other key findings included:
- The government studies provide no direct evidence that correlates higher home prices and the use of nonprofit down payment assistance to higher foreclosure rates.

- When comparing claim (foreclosure) rates, as opposed to default rates, nonprofit down payment assistance has a success rate that is in line with other FHA loans: 94 percent success rate among lonas with nonprofit down payment assistance, 95 percent success rate for loans with other assistance, and a 97 percent success rate for loans with no assistance.

It wasn't just the findings that caused a stir, but the fact that the government bodies touting the information were using questionable methodological issues. "This analysis raises concerns regarding the validity of research conclusions of three widely quoted reference documents on the performance of home loans of buyers receiving down payment assistance from nonprofit DPA programs," said Stephen Fuller, Professor of Public Policy and Director of the Center for Regional Analysis, George Mason University.

According to Fuller, the previous study also provided limited loan performance measures, unrepresentative samples, inconclusive statistical tests, and an aggregated demographic profile of homeowners that reduce the studies' value in providing factual evidence regarding the performance of NDPA programs.

But the biggest issue the Center had with results from the previous study was the two key factors not taken into account. According to the Center's analysis, any study of loan performance must do everything possible to account for borrower and market characteristics to ensure the results are not misleading.

To read the study in its entirety, visit www.ameridream.org.