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Weathering the Storm: Have IDAs Helped Low-Income Homeowners Avoid Foreclosure?

Homeownership has always been an essential ingredient in the American dream and is one of the most important means by which low-income and minority households can build wealth. But as we know all too well from recent years, homeownership is by no means a risk-free proposition. Foreclosure can dash that dream, stripping owners of hard-earned investments. It can also devastate a community, leaving behind vacant houses that drag down property values for surrounding homes and drain tax dollars from cash-strapped local governments.

Strategies that promote homeownership and deter foreclosure, such as Individual Development Accounts (IDAs), can break this cycle. New research conducted by CFED and the Urban Institute substantiates the claim that if affordable home ownership is done right – that is, with savings, financial education and equity rather than just debt – low-income and minority individuals can be successful homeowners.

The study, “Weathering the Storm: Have IDAs Helped Low-Income Homeowners Avoid Foreclosure?” tracked 831 homebuyers in 17 states who purchased homes using IDAs between 1999 and 2007. Compared to other low-income homebuyers who purchased homes in the same communities and over the same time period, IDA homebuyers:

  • Obtained significantly preferable mortgage loan terms, with only 1.5 percent having high-interest mortgage rates, compared to 20 percent of the broader sample.
  • Were two to three times less likely to lose their homes to foreclosure.

This study provides the first evidence available on loan terms and foreclosure outcomes of IDA homebuyers. The findings suggest that participation in an IDA program with its related services and restrictions can improve homeownership outcomes for low-income households.

CFED and the Urban Institute released the study at an event hosted by the Center for American Progress, Homeownership Done Right. CFED also hosted a webinar for the assets building field to discuss the results of the research and the implications for IDA practitioners and advocates. Please click here to watch the full webinar or download the presentations.

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