Reassessing FHA Risk
AbstractFederal Housing Administration (FHA) insurance has doubled over the past two years and is projected to redouble to $1.5 trillion over the next five. Despite clear signs of strain in the FHA’s Mutual Mortgage Insurance Fund, a recent actuarial review indicates that the FHA will not need any form of government support. We identify four risk factors that make such a funding request more likely; the review underestimates how many FHA borrowers are underwater and in economic distress; it uses measures of house values that lower loss estimates; it does not incorporate early-warning signals of future losses that are available from mortgage delinquency; and it ignores potential risks associated with recent down-payment assistant programs despite higher losses on previous programs of this type. We propose measures that could be taken to improve the predictive accuracy of FHA risk assessment.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15802.
Date of creation: Mar 2010
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- Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2013.
"The role of neighborhood characteristics in mortgage default risk: Evidence from New York City,"
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- Chan, Sewin & Gedal, Michael & Been, Vicki & Haughwout, Andrew, 2011. "The role of neighborhood characteristics in mortgage default risk: evidence from New York City," MPRA Paper 33941, University Library of Munich, Germany.
- Finn Poschmann, 2011. "What Governments Should Do in Mortgage Markets," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 318, January.
- Brent Smith, 2012. "Lending Through the Cycle: The Federal Housing Administration’s Evolving Risk in the Primary Market," Atlantic Economic Journal, International Atlantic Economic Society, vol. 40(3), pages 253-271, September.
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