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

Brent C. Smith

Economic Quarterly, 2011, issue 1Q, 95-110

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.

Keywords: Mortgages; Housing; Financial market regulatory reform (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:fip:fedreq:y:2011:i:1q:p:95-110:n:v.97no.1