However, early foreclosure rates were higher for low-income areas than for either medium- or high-income areas. Nationwide, the early foreclosure rate for low-income areas was 0.45 percent (i.e., 4.5 early foreclosures occurring for every 1,000 mortgages insured) compared with 0.30 percent and 0.21 percent for medium- and high-income areas, respectively. This pattern also held true for the six cities individually. Lenders With Early Foreclosures Made a Larger Share of Their Loans in Low- and Medium-Income Areas Than Lenders Without Early Foreclosures

For the six cities combined, lenders with early foreclosures made a larger percentage of their loans for properties in low- and medium-income areas and a smaller percentage of their loans for properties in high-income areas than lenders without early foreclosures. In San Bernadino, however, lenders with early foreclosures made a smaller proportion of their loans for properties in low-income areas and a larger proportion of their loans for properties in high-income areas than lenders without early foreclosures. Other things being equal, loans made for properties in poorer census tracts, smaller loans, loans with higher loan-to-value ratios, and loans with higher interest rates were associated with higher probabilities of early foreclosure. Our analysis did not disclose a pattern in the median time that these properties remained in HUD’s inventory in different income areas. For the six cities combined and for each of the individual cities except Dallas, the proportion of properties that had been in inventory for more than 6 months was greater in low-income areas than in either medium- or high-income areas. The equation we estimated used all of the FHA-insured single-family loans endorsed in calendar years 1992 through 1994 in six cities—Atlanta, Georgia; Baltimore, Maryland; Chicago, Illinois; Dallas, Texas; San Bernadino, California; and Washington, D.C. We excluded loans made for properties within the metropolitan statistical area (MSA) but outside the city’s boundaries. We did not obtain statistically significant results for Atlanta, Baltimore, Dallas, or Washington, D.C.

Time in Inventory for Single-Family Properties in Six Cities That Remained Unsold as of December 31, 1996, by Income Areas

Objectives, Scope, and Methodology

Our objectives were to (1) compare early foreclosure rates on FHA-insured single-family loans made in low-, medium-, and high-income areas nationwide and in the six cities; (2) compare across income areas the proportion of loans made in the six cities by FHA-approved mortgage lenders with and without early foreclosures; (3) identify factors that influence early foreclosure rates; and (4) compare the length of time HUD-owned single-family properties remained unsold in low-, medium-, and high-income areas in the six cities. In reporting information relating to early foreclosures on FHA-insured single-family loans endorsed during calendar years 1992 through 1994 in low-, medium-, and high-income areas nationwide, we relied on HUD’s analysis of the number of loans made, the number of early foreclosures, and the early foreclosure rates in the three income areas.
Why GAO Did This Study

Pursuant to a congressional request, GAO looked at early foreclosures in Chicago, Illinois; Washington, D.C.; Atlanta, Georgia; Dallas, Texas; Baltimore, Maryland; and San Bernadino, California focusing on: (1) comparing early foreclosure rates on Federal Housing Administration (FHA)-insured single-family loans made in low-, medium-, and high-income areas nationwide and in the six cities; (2) comparing across income areas the proportion of loans made in the six cities by FHA-approved mortgage lenders with and without early foreclosures; (3) factors that influence early foreclosure rates; and (4) comparing the length of time the Department of Housing and Urban Development (HUD)-owned single-family properties remained unsold in low-, medium-, and high-income areas in the six cities. GAO did not attempt to evaluate the soundness of mortgage underwriting decisions or the impact of vacant homes on neighborhood conditions because of the methodological difficulties that a broad examination of these issues would present.

What GAO Found

GAO noted that: (1) GAO's analysis of the FHA-insured single-family loans made during calendar years 1992 through 1994 nationwide and in the six cities showed that early foreclosures occurred infrequently but that early foreclosure rates were higher for low-income areas than for either medium- or high-income areas; (2) the early foreclosure rate for low-income areas nationwide was 0.45 percent (i.e., 4.5 early foreclosures occurring for every 1,000 mortgages insured) compared with 0.30 percent and 0.21 percent for medium- and high-income areas, respectively; (3) although this pattern prevailed in the six cities, there were also differences from one city to another; (4) for four of the cities--Atlanta, Baltimore, Dallas, and Washington, D.C.--lenders with early foreclosures made a larger proportion of their loans for properties in low- and medium-income areas and a smaller proportion of their loans for properties in high-income areas than did lenders that did not experience early foreclosure; (5) in San Bernadino, however, lenders with early foreclosures made a smaller proportion of their loans for properties in low-income areas and a larger proportion of their loans for properties in high-income areas than lenders without early foreclosures; (6) in Chicago, lenders with early foreclosures made a smaller share of their loans in medium-income areas than lenders without early foreclosures; (7) various factors influence the probability of early foreclosure; (8) GAO's analysis of the FHA-insured loans made in calendar years 1992 through 1994 in the six cities indicated that loans made for homes in poorer census tracts, smaller loans, and loans with higher loan-to-value ratios or higher interest rates were associated with higher probabilities of early foreclosure; (9) as of December 31, 1996, HUD held a total of 1,374 properties in its inventory in the six cities GAO reviewed; (10) GAO's analysis did not identify a pattern in the median time that these properties remained in HUD's inventory in different income areas; and (11) however, in five of the six cities and for the six cities combined, the proportion of properties that had been in inventory for more than 6 months was greater in low-income areas than in either medium- or high-income areas.