“We estimate that the reduction in fees to participate in FHA’s streamline refinance program induced nearly 180,000 additional loans to streamline refinance by the end of 2013, which will prevent more than 17,000 defaults over those loans’ lifetimes.”

(Source: CBO) In 2012, the Federal Housing Administration (FHA) reduced fees to refinance FHA-insured mortgages obtained before—but not after—a retroactive deadline.

We use a natural experiment to study how reduced mortgage payments affect default rates. Using a regression discontinuity design, we find that reducing payment size by 1 percent lowers conditional default rates by 2.75 percent.

Evidence suggests that those effects are larger for borrowers with negative equity and lower credit scores. We estimate that the policy will prevent more than 35,000 defaults of FHA-insured mortgages, saving FHA nearly $1 billion in present-value terms.

By Gabriel Ehrlich (formerly an employee of CBO) and Jeffrey Perry (CBO)

Read the study at this link

Moe Bedard
My name is Maurice "Moe" Bedard. I am the founder of America's #1 Mortgage Forum, LoanSafe.org. My online work has been featured in the New York Times, LA Times, Fox Business, and many other media publications.