Volume 3 Number 9
October 2006

In this Issue
Funding for Recovery in the Hurricanes' Wake, Part I
Neighborhoods in Bloom: Targeted Community Investment Works
Homeownership Voucher Programs: Benefits Are Worth the Challenges
The Maturing of America's Housing Finance System
In the next issue of ResearchWorks

Homeownership Voucher Programs: Benefits Are Worth the Challenges

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A new HUD report, Voucher Homeownership Study, explores the benefits and challenges of local voucher homeownership (VHO) programs sponsored by public housing authorities (PHAs). This publication, consisting of one volume of cross-site analyses and one volume of case studies, discusses program planning and design, financing homeownership, the characteristics of voucher purchasers and their communities, housing markets in these communities, and program and market factors that relate to the rate of home purchases.

In the fall of 2000, HUD authorized PHAs to develop their own VHO programs that would allow low-income households to apply their rental assistance toward the purchase of a home. By late 2005, more than 450 PHAs were operating programs that helped 4,000 households purchase a home. Under VHO programs, which are part of the broader Housing Choice Voucher program, the housing assistance payment (HAP) can directly offset mortgage payments, or can count as income for determining mortgage eligibility.

A Nationwide Profile of VHO Programs

The study surveyed PHAs that facilitated at least one VHO purchase and made detailed case studies of especially active and noteworthy programs. Site visits to 10 exemplary VHO programs in diverse locations and with varying designs allowed researchers to explore program successes and establish a context for the survey data. The 10 sites were the Bernalillo County Housing Department, New Mexico; CHAC Inc., Chicago; Housing Authority of Fulton County, Georgia; Indianapolis Housing Authority; Lorain Metropolitan Housing Authority, Ohio; Housing Authority of the City of Los Angeles; Montgomery County Housing Authority, Pennsylvania; New Hampshire Housing Finance Agency; Pinellas County Housing Authority, Florida; and Waco Housing Authority, Texas.

Program administrators at 206 PHAs that operated VHO programs and had at least one home purchase were interviewed by telephone. The surveyors asked about eligibility requirements, types and formats of partnerships for the programs, pre- and post-purchase assistance, mortgage-qualification assistance, other funding sources used to help participants, and mortgage delinquencies or defaults.

Voucher homeownership programs are helping some low-income renters become homeowners.

The study uncovered six key findings, each with unique implications for VHO programs:

• The number of VHO programs is growing, but most programs still have small numbers of purchases. About 60 percent of the PHAs reported 5 or fewer closings, with a median of 18 vouchers allocated to homeownership. Vouchers used for VHO purchases will probably always represent a small share of total vouchers. However, PHAs still see this option as a way to help families build their assets, while enhancing the PHAs' community image.
• Most PHAs recruit VHO participants without imposing extra requirements. Fewer than 20 percent of VHO programs have income or employment screening criteria beyond HUD's minimum standards. Additional criteria may lead to fewer purchases, so PHAs must weigh the risk of delinquencies or defaults against the possibility of discouraging homebuying.
• Although interest in VHO programs is stronger than most administrators anticipated, high housing prices may keep significant numbers of renters from buying homes. The interviewees noted that participants in VHO programs often had difficulty finding affordable homes in desirable neighborhoods. Therefore, VHO program administrators may need to help prospective low-income homebuyers secure additional financial resources.
• Defaults and delinquencies are rare. This finding may be attributed to the "HAP as income" model commonly used to finance VHO purchases. About 60 percent of survey respondents said they most often use this model, which, despite its reduced purchasing power, offers a lighter payment burden.
• Although purchasers move to different neighborhoods to buy homes, these neighborhoods do not vary markedly from the neighborhoods where they rented. Although owning did little to change the nature of the neighborhood in which they lived, some said the move helped them escape the stigma of being voucher program renters.

Although interest in VHO programs is strong, high housing prices may keep significant numbers of renters from buying homes.

• Although homebuyers call the purchasing process challenging, they are usually satisfied with PHA support and happy with their homes and neighborhoods. Overall, the benefits - including security of ownership and accumulation of assets - are worth the challenges. As one homebuyer noted, "It was not a breeze at all. I had a disability to deal with.... But I did not give up.... [Homeownership] is a blessing, more than anything I could have been given."

The complete two-volume Voucher Homeownership Study and a separate executive summary are available online from HUD USER and can be downloaded for free at www.huduser.org/publications/homeown/voucherhomeown.html. These documents are also available in print for a nominal fee by calling 800.245.2691 and selecting option 1.