FHA'S Default Insurance Program Strategically Case Study


2. Second, the deductibility of mortgage interest and property tax payments serves to lower the after-tax cost of homeownership, also contributing to owners' ability to increase savings or consumption. Many low-income owners may not benefit from these provisions, however, because the standard deduction often exceeds interest and property tax

3. Third, homeownership allows a borrower to tap into secured lending against his or her home, which, all else equal, is often at a lower rate of interest than unsecured lending. All these financial benefits are possible but in no way assured. As discussed in the following text, the proper way to view homeownership is as an investment that carries with it significant risks and uncertainties. For any number of reasons, homeowners can end up losing money on their homes or earn less of a return than if they had rented over some period." (Herbert and Belsky, 2008, p. 9)

A second area of benefits is stated as social benefits. Herbert and Belsky report that one primary social benefit is that "owners are thought to have higher satisfaction with their homes, in terms of both the housing unit itself and the neighborhood where they live. In theory, this observation could flow from the fact that owners have greater ability and incentive to invest in their homes to suit their tastes." (2008, p. 10) In addition, it is held that homeowners possess higher self-esteem "due to both the higher social status associated with homeownership and the sense of accomplishment that result from having achieved a significant life goal." (Herbert and Belsky, 2008, p. 10) Lastly, stated as an important social benefits of homeownership is "…better life outcomes for chil-dren who grow up in owner-occupied homes. Homeownership is thought to benefit children by several mechanisms. It may enable greater residential stability, which benefits children by provid-ing a stable social and educational environment." (Herbert and Belsky, 2008, p. 11)

II. Factors that Affect the Realization of Homeownership

Whether the benefits of homeownership are realized is dependent upon various factors including those stated as follows:

1. When (age and timing) household heads first become homeowners.

2. Where they choose to buy.

3. How much the household spends on housing.

4. The condition and age of the home they buy.

5. How much they reinvest in maintaining and improving their homes.

6. The mortgage products they can qualify for, have access to, and choose.

7. If and when they refinance mortgages or tap into home equity.

8. The return of alternative investments and the cost of renting instead.

9. Whether income or budget shocks force them to default on their mortgage loans or house price declines spur them to do so. The timing of purchases and sales relative to house price cycles.

10. The capacity to benefit from federal tax advantages.

11. How often they move, their tenure choice, and the transaction costs of moving. (Herbert and Belsky, 2008, p. 11)

Herbert and Belsky, (2008) state that practically all the factors that are contributors to the outcomes from choices of tenure "are likely to be strongly influenced by a household's income, race, and ethnicity." (p.11) It is stated as well that while mortgage interest can be deducted on federal income taxes providing incentive for homeownership, lower income households are stated to "derive fewer benefits form this provision both because they have lower marginal tax rates and because their itemized deductions may be small relative to the standard deduction, reducing the chance that they will choose to itemize their deductions." (Herbert and Belsky, 2008, p.11)

Figure 3 - Conceptual Model of Lifetime Returns from Tenure Choices

Source: Herbert and Belsky (2008)

Herbert and Belsky (2008) state that there are three critical factors that influence the experiences and decisions of low-income and minority home-buyers after they purchase their home and specifically state the following factors:

(1) First and foremost is the question of how long these owners maintain homeownership, because many of the financial and social benefits of homeownership are derived from residential stability.

(2) Second is the experience of these owners both in refinancing their primary mortgage and in using debt to tap their accumulated home equity, because these decisions have important implications for the ongoing costs of homeownership and whether these owners are able to accumulate wealth over time;

(3) Third, differences in low-income and minority homeowners' tendency to invest in maintenance and improvement to their homes also influence homeownership outcomes.

III. Government Creation of Place and Value

The work of Mark Moore "Creating Public Value: Strategic Management in Government" provides a description of what Moore refers to as a 'strategic triangle' of public value. It is suggested by Moore that corporate strategy...


Moore holds that these specific criteria are the measures that can be used by public managers as to the public value of such actions. Considerations are necessary concerning the legal and political support of the same and the feasibility of their administration and operation.
Moore additionally holds that public administration is required to make the determination of what can be expected from public managers and as well public administration must make identification of resources that serve to provision public managers with the information and tools needed to provide a response to these expectations and for developing more effective methods to provide rapid response to ever-shifting situations thereby exploiting these situations to the advantage of the public. Specifically Moore states "In seeking public value, we come finally to what many believe is the essence of management: the self-conscious, skilled deployment of legal, financial, material, and human assets to produce concrete results" It is suggested by Moore as follows "It is one thing for managers to have visions, and still another for them to mobilize a flow of resources to their enterprises. But the heart of management lies in delivering the envisioned value" (193).

Place is stated to be important to "individuals, to families and to all collectivities of humans." (Kirlin, 1997, p. 167) This is because individuals "live, marry, procreate, learn, work, participate in community affairs, play, worship, and die in specific geographical places. Specific governmental policies shape all these and other facets of life." (Kirlin, 1996, p. 167) Information, values and economic opportunities undoubtedly are influenced by global dynamics, but those factors do not so much reduce the importance of place as change in the way in which governmental actions will be used to enhance the value of place. Living in an open inclusive society." (Kirlin, 1996, p. 167)

Kirlin goes on to state that the types of value created by public and private action are "categorized as related to place, complex systems, or goods and services." (Kirlin, 1996) Kirlin states a belief that the primary function of governments is "increasing the value of place." (1996) Place is stated by Kirlin to be important both economically and politically.

IV. Functions Government Performs for Society

Three functions are performed by government for society:

(1) The first role is "…constituting an effective government";

(2) The second role is political choices that define and protect the character of the community; (3) the third role is 'service delivery'. (Kirlin, 1996, p. 168)

Kirlin states that "advocating the creation of value through governmental action is a useful beginning to what is needed to transform systems of governance." (p. 173) It is reported that the opportunities to create value "can be understood as a matrix defined by two dimensions. One dimension consist of five arenas for governmental action, while the second dimension consists of three types of value that can be created." (Kirlin, 1996, p. 173)

It is reported that the arenas are "social constructions where collective choice and action regarding government are possible." (Kirlin, 1996, p. 173) Arenas are stated to be "locations" defined socially, through which collective choice and action are possible." (Kirlin, 1996, p. 173) Kirlin states that in contrast, "the types of value involve analytical distinctions among the consequences of these choices and actions…" and therefore value distinguishing requires categories of products while distinguishing arena distinguishing requires categories of processes. (Kirlin, 1996,, paraphrased) The five arenas of governmental action are stated to be those of:

(1) constitutional;

(2) jurisdictional and civic infrastructure;

(3) Policy strategy and policy infrastructure;

(4) program implementation; and (5) organizational level/managerial. (Kirlin, 1997, p. 174)

It is reported that 'place' values are inclusive of effectiveness of political structures and civic institutions, individual, property and other rights, competitive position in global markets and the factors that influence the quality of life in an area, such as the environment, housing, affordability, personal safety, mobility, and opportunities for individuals to shape their own destinies." (Kirlin, 1996, p. 175)

Complex functional system values include effectiveness of linkages among public, private, and nonprofit organizations required for successful action in most arenas; extent of access to those structures; and capacity for learning and adaptation." (Kirlin, 1996, p.…

Sources Used in Documents:


Quigley, John M. (2005) Federal Credit and Insurance Programs: Housing. University of California, Berkeley.

Evolution of the U.S. Housing Finance System: A Historical Survey and Lessons For Emerging Mortgage Markets (2004) U.S. Department of Housing and Urban Development. 31 Mar 2006.

Affordable Housing Policies in the U.S. (2009) Department of Housing and Urban Development. 2 Mar 2009.

Herbert, Chris E. And Belsky, Eric S. (2008) The Homeownership Experience of Low-Income and Minority Households: A Review and Synthesis of the Literature. Cityscape: A Journal of Policy Development and Research • Volume 10, Number 2 • 2008 U.S. Department of Housing and Urban Development • Office of Policy Development and Research
Source: 2000 HMDA Data, Federal Financial Institutions Examinations Council, available at http://www.ffiec.gov.
Source: 2000 HMDA Data, Federal Financial Institutions Examinations Council, available at http://www.ffiec.gov.
Source: U.S. Housing Market Conditions, 3rd Q. 2001, HUD, available at http://www.huduser.org/periodicals/ushmc.html.

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