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A new report by the UNC Center for Community Capital puts the Federal Housing Agency’s financial outlook in perspective and cautions against knee-jerk policy reactions that could undermine recovery of both the agency and the nation’s fragile housing market.

“FHA has operated successfully for 80 years and plays a vital role in filling gaps in America’s housing market left by the private market,” says report co-author and center director Roberto G. Quercia. “Great damage can be done by fixing something that‘s not broken or making policy decisions that fail to consider the facts of FHA’s financial condition in the broader context of its public purpose and value.”

The center’s report, Sustaining and Expanding the Market: The Public Purpose of the Federal Housing Administration, follows a November actuarial report showing projected losses for FHA’s insurance fund could exceed the $30 billion it holds in reserve to cover them. Law requires that the U.S. Treasury Department boost the fund’s reserves to cover any excess potential losses. Lawmakers and regulators are considering whether to respond with additional policy or regulatory action.

The center’s report examines FHA’s public purpose mission, history, current financial condition and outlook. FHA is the mortgage insurer created by Congress during the Great Depression to stabilize the housing market. It has been a self-sustaining entity throughout its nearly 80-year history based on fees it charges borrowers.

FHA has provided three essential benefits for U.S. housing markets, UNC researchers said:

  • Regional and counter-cyclical stabilization – stabilizing the housing market by playing a bigger role when private-sector lending declines.
  • Overcoming household wealth constraints – lending to creditworthy borrowers and geographies marginally or poorly served by the private sector.
  • Providing product innovation and standardization – testing and popularizing new types of mortgages, such as the 30-year, fully amortizing, fixed-rate mortgage, a fixture of U.S. mortgage lending that is responsible for significantly sustainably expanding American home ownership.

Given FHA’s current cash flow and profitable mortgage portfolio, researchers said, the agency has sufficient capital to continue paying claims.

“The simplest way to recapitalize FHA’s insurance fund is to allow FHA to continue serving the market as it recovers,” Quercia said. “Policymakers need to use caution when considering policies for FHA that may unintentionally weaken the nascent housing recovery and deprive FHA the opportunity to restore its capital.”

Quercia co-authored the report with Kevin A. Park, center research associate and Ph.D. candidate in the University of North Carolina at Chapel Hill’s Department of City and Regional Planning. The complete report may be found online at

Housing finance is a key area of study for the UNC Center for Community Capital, the leading center for research and policy analysis on the transformative power of capital on households and communities in the United States. The center is part of the College of Arts and Sciences at the University of North Carolina at Chapel Hill. Its in-depth analyses help policymakers, advocates and the private sector find sustainable ways to expand economic opportunity to more people, more effectively. For more information, visit or call (919) 843-2140.


Topics(s): Affordable Homeownership, Housing Policy, Mortgage Finance
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