Sustaining and Expanding the Market: The Public Purpose of the Federal Housing Administration

Publication Date

December 2012

Author(s)

Kevin A. Park, Roberto G. Quercia

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A new report puts the Federal Housing Agency’s public purpose and 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.

The most recent actuarial review of the Federal Housing Administration’s Mutual Mortgage Insurance Fund finds that the losses on its current portfolio are projected to overwhelm its revenue and current capital resources.

This report places the fund’s “negative economic value” in context and argues that justification for the federal mortgage insurance is the public purpose it serves in filling gaps left in the private conventional mortgage market. This purpose includes regional and countercyclical stabilization, overcoming household wealth constraints and providing product innovation and standardization.

After a review of FHA’s activities over the decades, center researchers conclude that FHA has served its public purpose relatively well and that its relevance is likely to increase with the ongoing transformation of the housing finance system and the demographic changes expected to characterize America’s mortgage demand in the years to come.