Residential Foreclosures in the City of Buffalo, 1990-2000 - Federal ...

While the level of lending over the 1992-2000 period varied among communities,
the distribution of lending across major loan types was fairly similar. FHA lending was
somewhat more prevalent in East Delavan and less common in North Buffalo-Elmwood
than was typical, while Riverside demonstrated a relatively low share of conventional
refinance lending. But generally, the differences in lending patterns by loan type were not
significant.
Foreclosure Rates on FHA and Conventional Mortgages
Through an analysis of mortgage lending patterns, we improve our understanding of the
context in which the rise in foreclosures took place. Lending data also allow us to assess
the performance of the three major types of loans. The performance of loans is indicative
of the relative risk associated with each loan type. The level of risk among loan types can
vary because of differing terms (for example, loan-to-value ratio, interest rate, fees) and
differing pools of borrowers (for example, those with a good versus those with a poor
credit history). Additionally, an examination of the performance of loans across Buffalo
communities helps to explain the patterns of foreclosure by loan type observed earlier in
this study. Although we are unable to determine a foreclosure rate directly, we can get a
sense of loan performance by calculating the percentage of all loans originated from 1992
to 2000 that foreclosed in 2000. The results for Buffalo and its communities are depicted
in Chart 8.
Using this foreclosure rate proxy, we see that for Buffalo overall, FHA purchase
mortgages originated from 1992 to 2000 were more likely to have foreclosed in 2000
than were either kind of conventional mortgage. This result might be expected, given the
fact that the standard FHA foreclosure rate is typically twice that of the conventional rate.
However, in this case, the FHA rate appears to be somewhat less than twice the
conventional rate. This difference could simply be due to the fact that the standard
foreclosure rate is calculated differently than our substitute for that variable. However,
the foreclosure rates for FHA loans and for conventional loans in Buffalo could be closer
for other reasons. For example, as we discuss later, there has been significant growth in
the share of subprime conventional loans. The increase in these riskier, high-cost loans
may be raising the foreclosure rate of conventional loans generally.
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