Down-Payment Financial Assistance Link to Loan Default Disappears in New Study

A new study suggests defaulting on a loan is not tied to receiving financial assistance for a down payment, as originally thought, when controlled for race or ethnicity. Predatory loan practices, higher mortgages, and disparity in income make it more likely for minority borrowers to default rather than any down-payment assistance received.

Receiving financial assistance with a down payment won’t increase the chances of a homeowner defaulting on their mortgage, according to a new study.

A new working paper prepared for the Center for Household Financial Stability at the Federal Reserve Bank of St. Louis examined the performance track record for loans made with some form of down-payment assistance.

Down-payment assistance has grown in popularity in recent years as home prices have soared across the country, making it more difficult to put together enough money for a home purchase. There are more than 2,000 private- and government-sponsored down-payment assistance programs across the country today. The share of Federal Housing Administration-backed loans made with down-payment assistance has grown from around 30% in 2011 to nearly 40% in 2018.

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