Down Payment Assistance Programs Don’t Affect Loan Performance

A report released by the Harvard Joint Center for Housing Studies found that down payment assistance programs had little impact on loan performance. The center’s  Working Paper, “A Cautionary Tale of How the Presence and Type of Down Payment Assistance Affects the Performance of Affordable Mortgage Loans,” found, among other things, that the performance of home loans was not significantly impacted when down payment assistance was used.


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According to the study’s authors, “Our multivariate analysis indicates that the receipt of DPA (down payment assistance) is not significantly associated with default risk. In particular, while grant assistance from a government or community organization is marginally significant as a predictor of default risk in one of our model specifications, this effect disappears altogether when racial controls are incorporated in the model. Thus, the receipt of DPA appears to be unrelated to default risk.”


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According to the study’s authors, “Our multivariate analysis indicates that the receipt of DPA (down payment assistance) is not significantly associated with default risk. In particular, while grant assistance from a government or community organization is marginally significant as a predictor of default risk in one of our model specifications, this effect disappears altogether when racial controls are incorporated in the model. Thus, the receipt of DPA appears to be unrelated to default risk.”


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A recent white paper published by CBC Mortgage Agency, found that more than 90 percent of down payment assistance recipients would not have been able to purchase a home without down payment assistance. More than half of buyers helped by CBC Mortgage Agency are racial or ethnic minorities.


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“Down payment assistance programs have come under attack lately, with some arguing that all down payment assistance is bad,” stated Ferguson. “This view is likely the result of pre-crisis down payment assistance programs in which property sellers were allowed to pay the buyer’s down payment and raised the price of the property in order to cover the cost. Those seller-paid programs have been shut out of the market for years and are no longer an issue. Today’s programs must be economically viable without the help of a home seller. In recent years, loan performance on transactions in which the borrower received down payment assistance has been far better compared to loans under the former seller-paid programs.”

“Many individuals are unaware that they can achieve homeownership even though they are unable to save for a down payment,” Ferguson added. “This includes many who diligently make large student loan payments each month which leave them with little money to save towards a down payment for a home. Down payment assistance is the solution for these individuals.”