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Mortgage reform and the countercyclical role of the Federal Housing Administration's mortgage mutual fund insurance

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  • Brent C. Smith

Abstract

It has been 75 years since the Federal Housing Administration (FHA) was established and it is again serving as the primary backstop in the current housing market downturn, insuring roughly 39 percent of all new purchase loans. This countercyclical role for the FHA, with respect to the housing market cycle, does not come without costs, and the main cost is the risk of new lending in a market with declining house values. As current discussion on mortgage finance reform focuses on the role, or elimination, of the government-sponsored enterprises, the countercyclical future role of, and the level of reliance on, the FHA should be at the center of the debate.

Suggested Citation

  • Brent C. Smith, 2011. "Mortgage reform and the countercyclical role of the Federal Housing Administration's mortgage mutual fund insurance," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 97(1Q), pages 95-110.
    • Handle: RePEc:fip:fedreq:y:2011:i:1q:p:95-110:n:v.97no.1
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    References listed on IDEAS

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    1. Miles L. Colean, 1953. "A Review Of Federal Mortgage Lending And Insuring Practices," Journal of Finance, American Finance Association, vol. 8(2), pages 249-256, May.
    2. Hendershott, Patric H & Waddell, James A, 1992. "The Changing Fortunes of FHA's Mutual Mortgage Insurance Fund and the Legislative Response," The Journal of Real Estate Finance and Economics, Springer, vol. 5(2), pages 119-132, June.
    3. Lucas, Deborah (ed.), 2010. "Measuring and Managing Federal Financial Risk," National Bureau of Economic Research Books, University of Chicago Press, number 9780226496580, December.
    4. Kristopher Gerardi & Adam Hale Shapiro & Paul S. Willen, 2007. "Subprime outcomes: risky mortgages, homeownership experiences, and foreclosures," Working Papers 07-15, Federal Reserve Bank of Boston.
    5. Deborah Lucas, 2010. "Measuring and Managing Federal Financial Risk," NBER Books, National Bureau of Economic Research, Inc, number luca07-1, March.
    6. Ambrose, Brent W. & Pennington-Cross, Anthony, 2000. "Local economic risk factors and the primary and secondary mortgage markets," Regional Science and Urban Economics, Elsevier, vol. 30(6), pages 683-701, December.
    7. Ambrose, Brent W & Buttimer, Richard J, Jr & Capone, Charles A, 1997. "Pricing Mortgage Default and Foreclosure Delay," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 314-325, August.
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    Cited by:

    1. Brent Smith, 2012. "Lending Through the Cycle: The Federal Housing Administration’s Evolving Risk in the Primary Market," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 40(3), pages 253-271, September.

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