From the U.S. Government Accountability Office, www.gao.gov Transcript for: Homeownership Mortgage Products Description: Americans buying homes may find help with federal homeownership assistance programs. But those programs aren't designed to accelerate equity building. Should they be? Related GAO Work: GAO-18-297: Homeownership: Information on Mortgage Options and Effects on Accelerating Home Equity Building Released: March 2018 [ Background Music ] [ Dan Garcia-Diaz: ] With more equity, families can weather financial downturns. [ Matt Oldham: ] Welcome to GAO's Watchdog Report, your source for news and information from the U.S. Government Accountability Office. I'm Matt Oldham. Imagine you're looking to buy a house, and you qualify for Federal Homeownership Assistance Program, and you buy the house. Great, that's what those programs are there for. But, let's say you find out your neighbor, who also recently moved in, secured a mortgage without the help of a federal program. And she'll pay off her mortgage in less time than you will, building equity quicker than you. At this point, you might be wondering if that option is available through a federal program. Recently, I sat down with Dan Garcia-Diaz, a director in our Financial Markets and Community Investment team to talk about GAO's new report on mortgage products designed to speed up equity building. I wanted to know if there are federal programs to help Americans build home equity quickly. [ Dan Garcia-Diaz: ] So, we found in our report that there were no explicit programs that accelerated equity compared to say, how you would build equity in a 30-year fixed mortgage. But, these programs are generally intended to bring in populations that would normally not be able to get a mortgage in the private market. And so, by opening up home ownership to a broader public, they are able to actually generate equity in their properties provided they continued to pay their mortgage, and prices don't necessarily depreciate. [ Matt Oldham: ] So, there aren't any of these products available with the federal government, but what does the landscape look like in the private sector? [ Dan Garcia-Diaz: ] So, our study found very limited optionsfor families to find mortgage products that encourage accelerated equity building. But, even though there may be a girth of products out there, families can still take action to accelerate equity on their own. So, for instance, they can actually make extra payments every month to reduce their outstanding balance on their mortgage. There are also other schemes where you can pay twice a month on your mortgage, and that reduces the number of payments that you ultimately make on that 30-year mortgage. [ Matt Oldham: ] So, then what were the reasons for this report? [ Dan Garcia-Diaz: ] If you think back to the financial crisis of 2008, the big problem there were that families had built up large debt relative to the value of their property. So, they found themselves in situations of negative equity. And so, moving forward, a lot of policy makers are looking at ways that we can take the standard mortgage products that are available, and try to find new ways to accelerate equity building. And the value of that is that, with more equity families can weather financial downturns or depreciation in real estate prices. And also, affords them opportunities to use the equity to finance other important decisions like education or retirement. [ Matt Oldham: ] With somebody recognizing then that, consumers who use Federal Assistance Homeownership Programs may not be building equity as quickly as their neighbors, and was there a concern, or is there an interest in trying to even that playing field? [ Dan Garcia-Diaz: ] I think there's a general concern for both the households that are receiving federally insured mortgages, as well as households who tap into the private market for their mortgage. And the policy concern is that, households may not have enough options to find a mortgage product that both balances the affordability concern, as well as building equity at a quicker pace. [ Background Music ] [ Matt Oldham: ] So, it sounds like the federal programs that exist to help Americans buy homes are not designed to build equity quickly, but rather to help open the doors to homeownership. And if you want the opportunity to build equity quicker than what the federal programs offer, you need to find a private lender. So, Dan, your report mentioned tradeoffs, is this a case of good news, bad news? [ Dan Garcia-Diaz: ] As with all things, there is no free lunch. If a household wants to accelerate equity building, they're going to either have to pay more upfront in down payment, or have higher monthly payments on their mortgage. And while there's a lot of benefits from building equity sooner, it does tie up their cash flow on a monthly basis. And it may prevent them from making other decisions, financial decisions like paying down high interest rate credit cards. [ Matt Oldham: ] What's the bottom line of this report? [ Dan Garcia-Diaz: ] The bottom line is that, accelerated equity building certainly presents opportunities for families to strengthen their financial position. And be in a good position when they are intending to sell their property. And it certainly provides a cushion if real estate prices drop, but it may not always be the right choice for households. And for households that have limited income or high debt, they may want to enjoy the flexibility of a 30-year fixed mortgage, as opposed to paying higher for something that accelerates equity at a faster pace. [ Background Music ] [ Matt Oldham: ] Thanks for listening to the Watchdog Report. To hear more podcasts, subscribe to us in Apple Podcasts. [ Background Music ] [ Matt Oldham: ] For more from the Congressional Watchdog, the U.S. Accountability Office, visit us at GAO.gov.