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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
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    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.

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    File URL: http://www.richmondfed.org/publications/research/economic_quarterly/2011/q1/pdf/smith.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Richmond in its journal Economic Quarterly.

    Volume (Year): (2011)
    Issue (Month): 1Q ()
    Pages: 95-110

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    Handle: RePEc:fip:fedreq:y:2011:i:1q:p:95-110:n:vol.97no.1

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    Keywords: Mortgages ; Housing ; Financial market regulatory reform;

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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, 05.
    2. Deborah Lucas, 2010. "Measuring and Managing Federal Financial Risk," NBER Books, National Bureau of Economic Research, Inc, number luca07-1.
    3. 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.
    4. Paul S. Willen & Adam Hale Shapiro & Kristopher Gerardi, 2008. "Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures," 2008 Meeting Papers 345, Society for Economic Dynamics.
    5. 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 314-25, August.
    6. James F. Epperson & James B. Kau & Donald C. Keenan & Walter J. Muller, 1985. "Pricing Default Risk in Mortgages," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 13(3), pages 261-272.
    7. Diego Aragon & Andrew Caplin & Sumit Chopra & John V. Leahy & Yann LeCun & Marco Scoffier & Joseph Tracy, 2010. "Reassessing FHA Risk," NBER Working Papers 15802, National Bureau of Economic Research, Inc.
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