Reassessing FHA Risk

Diego Aragon, Andrew Caplin, Sumit Chopra, John Leahy, Yann LeCun, Marco Scoffier and Joseph Tracy

No 15802, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Federal 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.

JEL-codes: D14 G21 G28 H81 (search for similar items in EconPapers)
Date: 2010-03
Note: EFG ME
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Citations: View citations in EconPapers (13)

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