The Federal Housing Administration: Bringing the Housing Finance System Out of a Chaotic Situation

The Federal Housing Administration: Bringing the Housing Finance System Out of a Chaotic Situation

Highlights

• Created in 1934 under the National Housing Act, the Federal Housing Administration expands homeownership by providing millions of homeowners underserved by the conventional market with access to a stable source of home mortgage credit.
• FHA helped stimulate mortgage lending during the Great Recession by boosting the refinancing of conventional mortgages, resulting in more affordable housing costs for more than 1.6 million conventional borrowers between 2006 and 2012.
• FHA’s capacity to withstand the COVID-19 pandemic’s economic fallout remains strong and it has taken several steps to ensure mortgage credit availability during the current situation.

A More Economical, Dependable, and Sounder Source of Home Mortgage Credit

Figure 1. Historical FHA Lending Volume

Sources: Federal Housing Administration, Single Family Data Warehouse; U.S. Department of Housing and Urban Development. 1979. “1979 Statistical Yearbook”; U.S. Census Bureau. “Statistical Abstract of the United States: 1987” (www.census.gov/library/publications/1986/compendia/statab/107ed.html). Accessed 10 September 2020; Federal Reserve, Flow of Funds, Table B.101 Balance Sheet of Households and Nonprofit Organizations.

The United States’ current housing finance system was forged during the depths of the Great Depression; it was designed to stimulate private investment to bolster the economic recovery and increase employment. Before the 1930s, mortgage borrowers typically made interest-only payments for three to five years before requiring a balloon repayment of the principal. Borrowing more than half the value of the house often required a second loan with a high interest rate.1

These short term, interest-only loans had to be refinanced frequently, which was difficult if home prices declined or financial institutions became distressed. Nominal home prices peaked in 1925 and fell 30 percent by 1933.2 By then, more than one in five American workers was unemployed.3 In 1933, 1,000 homes entered foreclosure every day. The foreclosure rate exceeded 1 percent of all mortgages each year from 1931 to 1935. At the start of 1934, nearly 44 percent of urban, owner-occupied homes with a mortgage were in default.4

In response to the economic crisis, Congress created the Home Owners’ Loan Corporation in 1933 to purchase and refinance delinquent mortgages. The following year, the National Housing Act of 1934 created the Federal Housing Administration (FHA) to encourage new home lending. These new agencies allowed borrowers to finance a larger share of the property value in a single loan. Loans required full amortization, meaning that the principal and interest would be repaid in regular fixed payments over the life of the loan. Long loan terms and low interest rates reduced borrowers’ monthly payment burden. Private industry would not participate in such a radical experiment in mortgage underwriting without government support, and direct lending would explode the federal debt. Instead, an insurance program would “use the power of government to establish the conditions under which private initiative could feed itself and multiply its own benefits.”5

FHA’s first annual report summarized its mission:

The mutual mortgage insurance system as established by the National Housing Act aims to provide the millions of home owners in the country with a more economical, dependable, and sounder source of home-mortgage credit.

It was designed to bring the home-financing system of the country out of a chaotic situation, and to restore it on an improved basis, able to meet the legitimate demands of the borrowing public, and to provide for the revival of home-building activity which is so essential to the recovery program.6

FHA gradually reduced downpayment requirements further and extended loan terms to create the 30-year, fixed-rate, self-amortizing loan that dominates modern American housing finance. The liberalization of mortgage products and underwriting democratized homeownership, which increased from 46 percent in 1920 to 62 percent by 1960. In addition, FHA has reprised its countercyclical role several times. Figure 1 shows that FHA annually insures new loans worth, on average, roughly $1 for every $144 in total value of real estate held by households, although that ratio varies over the business cycle. Since World War II, FHA’s share of the mortgage market has increased by more than 5 percentage points in a single year four times (in 1948, 1958, 1970, and 2008), each time in response to a recession.7 Residential investment is a primary driver of broader economic cycles.8 FHA’s unique position to simulate mortgage lending helps ameliorate recessions and jump-start economic recoveries.

The National Housing Act also established the Mutual Mortgage Insurance (MMI) Fund to finance FHA’s mortgage insurance. The MMI Fund is intended to be self-supporting, with borrowers paying premiums sufficient to cover investors’ claims if a borrower defaults. “Mutual insurance” generally refers to an insurance company that is owned by its policyholders and in which profits are returned as dividends. Between 1943 and 1991, FHA returned similar “distributive shares” after a loan was repaid. FHA suspended dividends after actuarial reviews found that the MMI Fund had a negative economic net worth, meaning that the present value of projected losses on existing loans exceeded the existing capital resources of the fund and the present value of projected revenue. Each book of business must have a negative credit subsidy (that is, a positive economic value) or require appropriations under the Federal Credit Reform Act of 1990. In addition, the Cranston-Gonzalez National Affordable Housing Act of 1990 requires the MMI Fund to maintain a capital ratio (defined as the economic net worth as a share of the insurance in force) of at least 2 percent.9 The net worth, and therefore the level of required capital reserves, is based on the expected risk to the fund, which is a function of both the credit quality of insured borrowers as well as assumptions about the future of the economy.10

Current FHA premiums are designed to cover expected losses of 5 percent, which would be incurred “during normal business cycles, which would include mild recessions,” and an additional 1 percent that builds the MMI Fund’s capital reserves to cover unexpected losses.11 The first independent actuarial review of the fund posited a Great Depression-type scenario of declining home prices and interest rates and an unemployment rate reaching 20 percent, but it notes that “we assume that the social purpose of the Fund is such that it should not be expected to withstand such a calamity.”12 More recently, the U.S. Government Accountability Office discussed the balance between risk to the fund and the mission of FHA:

A minimum capital requirement that is too low may result in FHA taking on too much risk and having an insufficient capital buffer to withstand an economic downturn without requiring supplemental funding. On the other hand, FHA also has a statutory operational goal to provide mortgage insurance to traditionally underserved borrowers—such as low-income, minority, and first-time home buyers—and historically has played a role in stabilizing housing markets during economic downturns. Setting a minimum capital requirement that is too high may limit FHA’s ability to serve the borrowers for which it was intended or play its market-stabilizing role, because it might require FHA to charge insurance premiums that many borrowers cannot afford or impose underwriting standards they cannot meet.13

Neither Congress nor FHA has explicitly specified the economic conditions the MMI Fund should be able to withstand.14

Figure 2. FHA and Conventional Price/Risk Comparison, June 2020

Note: Assumes $250,000 purchase price with a downpayment of 10 percent or less and a credit score greater than or equal to 620. GSE loan-level price adjustments annualized by a factor of 5. Upfront FHA mortgage insurance premium financed in the loan amount with a 3.4 percent interest rate. Delinquency rates based on FHA books of business from 2011 through 2015.

Sources: Federal Housing Administration; Genworth Mortgage Insurance. 2019. “Monthly Premium MI (BPMI)-Fixed (Effective Date: June 4, 2018)”; Fannie Mae. 2020. “Loan-Level Price Adjustment (LLPA) Matrix,” 11 June.

If losses overwhelm the MMI Fund, FHA has “permanent indefinite authority” to draw funds from the U.S. Department of the Treasury under the Federal Credit Reform Act. This explicit government guarantee is integral to the ability of FHA to support the mortgage market; even if the MMI Fund is in the red, investors will remain confident that the federal government is backing FHA and that mortgage insurance claims will continue to be paid. Lenders therefore will continue to underwrite FHA-insured loans. Similarly, the U.S. Department of the Treasury explicitly backs the guarantees of the Government National Mortgage Association (Ginnie Mae), which supports the secondary market for mortgages insured by FHA or other federal agencies. Together, these agencies provide liquidity to the mortgage market, boosting demand for homes and forestalling a repeat of the debt-deflation spiral of the Great Depression.

FHA also distinguishes itself from other entities in that it does not need to earn a return on its capital reserves. The Federal Housing Finance Agency notes that the cost of holding capital, including both the level of capital and a target return, is “by far the most significant” component of the guarantee fees charged by the government-sponsored enterprises (GSEs) the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).15 The cost of capital can be up to 29 times greater than the costs directly related to their expected credit losses.16 As Bunce et al. said, “The freedom from having to earn a private risk-adjusted profit is FHA’s principal cost advantage over the [private mortgage insurers] in serving riskier borrowers.”17

Despite its cost advantage, FHA generally complements rather than competes with the conventional market and private mortgage insurance companies because FHA pools risk across borrowers with minimal variation in pricing. The conventional market, on the other hand, typically charges higher-risk borrowers more than lower-risk borrowers. Figure 2 shows that an FHA borrower purchasing a $250,000 house would pay less than $200 a month in insurance premiums, including both an annual premium and an upfront premium that may be financed in the loan amount, regardless of his or her downpayment, credit score, or debt burden. By contrast, the combination of risk-based private mortgage insurance premiums and loan-level price adjustments that the GSEs levy varies from $60 to $600 per month. As a result, higher-risk borrowers will find FHA-insured loans less expensive than conventional mortgages.

Many higher-risk borrowers include first-time homebuyers and minority households that otherwise might have difficulty accessing affordable mortgage credit. Between 2015 and 2018, two-thirds of loans endorsed by FHA (82% of endorsed purchase loans) went to first-time homebuyers, and more than 35 percent went to minority borrowers. By comparison, only 20 percent of loans acquired by GSEs (40% of purchase loans) in the same period went to first-time homebuyers, and roughly 22 percent went to minority borrowers. Enabling new homebuyers to enter the market allows existing homebuyers to sell and fosters greater liquidity, particularly in a depressed market.18 As HUD stated in its 2019 housing finance reform plan, “Generally, FHA facilitates earlier entry points into homeownership for [first-time homebuyers] than conventional mortgage loans. This is FHA’s most important contribution to the American housing market.”19

Figure 3. FHA’s Countercyclical Market Share

Sources: Federal Housing Administration, Single Family Data Warehouse; CoreLogic®, Real Estate Analytics Suite.

The Great Recession

Many considered FHA a vestigial part of the American housing finance system at the start of the millennium; a New Deal relic at a time when Wall Street was managing risk through derivatives and other sophisticated financial instruments. In 2006, FHA helped finance less than 4 percent of home purchases (figure 3) and was almost entirely absent from the nation’s hottest housing markets. For example, fewer than 2,300 FHA-insured home purchase loans were originated in the entire state of California in 2006, accounting for approximately 1 in 260 home sales. But as the housing market collapsed and the country entered the Great Recession, FHA’s market share spiked to a quarter of all home purchases. In addition, FHA refinances of conventional mortgages, including many unsustainable subprime loans, increased from 33,000 in all of 2005 to 36,000 per month in 2009. Between 2006 and 2012, FHA helped more than 1.6 million conventional borrowers take advantage of falling interest rates to lower their housing costs. Moody’s Analytics estimates that were it not for FHA, 2.4 million fewer homes would have been sold in 2011, and sales prices would have fallen an additional 19 percent.20

FHA’s market share ballooned in part because of a dramatic statutory increase in loan limits. The Economic Stimulus Act of 2008 effectively increased the nationwide “floor” from $200,160 to $271,050 and the high-cost area “ceiling” from $362,790 to $729,750. However, base loan amounts greater than the earlier limits accounted for only 15 percent of the increase in FHA lending between 2006 and 2009 and only 12 percent of overall FHA lending through 2013. The growth in FHA lending did not significantly displace conventional lending, leading to an increase in overall credit availability. The conventional market had sufficiently recovered to replace FHA lending when the limits expired in 2014 and were replaced by a new statutory formula under the Housing and Economic Recovery Act.21

Figure 4. Credit Risk of FHA vs. Overall Market

Sources: William Larson, Morris Davis, Stephen Oliner, and Benjamin Smith. 2019. “A Quarter Century of Mortgage Risk,” Working Paper 19-02, Federal Housing Finance Agency; American Enterprise Institute. “Mortgage Risk Index” (www.aei.org/housing/mortgage-risk-index/). Accessed 10 September 2020; Urban Institute. 2020. “Housing Credit Availability Index.”

FHA’s market share is countercyclical primarily because its underwriting standards are the industry’s least procyclical.22 Figure 4 shows three measures of the average credit risk of FHA loans and the overall market over time, independent of the risk related to the economic environment. In keeping with its public mission to serve marginal homebuyers, FHA loans are generally higher-risk products. This fact, however, does not mean that FHA-insured mortgages have historically been the riskiest loan products. In fact, FHA-insured loans that closed between 2002 and 2010 were less likely to default than privately insured loans with similar borrower and loan characteristics.23

Figure 4 shows that FHA did not experience a dramatic deterioration of underwriting standards during the housing boom. By contrast, private mortgage-backed securities and mortgage insurance companies underestimated and underpriced risk.24 Passmore and Sherlund found that areas more reliant on government or GSE mortgage channels before the Great Recession experienced smaller declines in employment, automobile sales, home sales, and mortgage originations as well as lower rates of mortgage delinquency.25 As they observed, “The persistence of better outcomes with higher pre-crisis use of FHA/VA lending is consistent with a view that less procyclical government underwriting standards and credit risk pricing — backed by a securitization outlet with the full faith and credit of the government — can stimulate additional economic activity during and after a financial crisis.”26

Figure 4 also shows that FHA did not tighten underwriting standards as much as the conventional market did during the Great Recession, although it did take several important steps to reduce losses. Annual insurance premiums increased from 0.50 percent to 1.55 percent between 2008 and 2013 and were levied for the life of the loan.27 The minimum downpayment requirement for a borrower with a credit score of less than 580 increased to 10 percent. Most important, the Housing and Economic Recovery Act of 2008 prohibited seller-funded down-payment assistance. FHA’s fiscal year (FY) 2016 actuarial review estimated that these loans cost the MMI Fund $16.5 billion.28

Lenders restricted FHA’s “credit box” by imposing overlays, such as minimum credit score requirements, that further reduced losses but also limited credit availability beyond FHA’s stated underwriting standards.

Despite these steps to reduce losses, the Great Recession took a severe toll on the MMI Fund (figure 5). In 2019 dollars, the economic net worth of FHA-insured forward loans fell from $25.4 billion, or 6.4 percent of the insurance in force, in FY 2007 to –$14.8 billion (–1.2%) just 5 years later. Although the MMI Fund still held roughly $30 billion in capital reserves, the projected losses on existing books of business required a $1.7 billion draw from the U.S. Department of the Treasury in 2013 under federal accounting rules. As Weicher observed, “The goal of 2.0% was not expected to be sufficient to withstand a major economic downturn, and that expectation has now been fulfilled.”29

Figure 5. Economic Value of the Mutual Mortgage Insurance Fund (Forward Loans)

Note: Adjusted using the Personal Consumption Expenditures price index. Source: Federal Housing Administration, Annual Actuarial Reviews.

If FHA had been a private mortgage insurance company, it would have been declared insolvent and forced into bankruptcy. In fact, three private mortgage insurance companies failed during the Great Recession. Distressed mortgage insurers became less likely to approve insurance applications, restricting the availability of conventional mortgage credit.30 Private mortgage insurance underwriting standards were tightened, particularly in the most distressed housing markets.31 By law, the GSEs require credit enhancement — typically private mortgage insurance — to purchase loans with low downpayments. The GSEs themselves are also private companies with shareholders. If these financial institutions become distressed, conventional credit becomes more expensive and less available. Szymanoski et al. noted that “profit-maximizing lenders do not only raise prices when lending becomes riskier in areas experiencing economic downturns, instead, they tighten underwriting to ration the number of mortgages made in such an area. FHA, on the other hand, maintains its presence in all markets, providing stability and liquidity in markets experiencing recession.”32 The explicit government guarantee given to federal agencies such as Ginnie Mae and FHA, along with sister mortgage insurance programs administered by the U.S. Department of Veterans Affairs and the U.S. Department of Agriculture, grant them a special role in stabilizing the economy.

The housing finance reform plan released by the Trump administration in 2019 acknowledged the important roles of FHA and Ginnie Mae: “When the mortgage market contracts and private capital recedes, HUD must maintain stability in the nation’s housing finance system by continuing to serve as a countercyclical buffer.”33 FHA also helps expand homeownership by increasing access to mortgage credit among those underserved by the conventional market:

While FHA was created to counter the collapse of the housing finance market during the Great Depression, its mission now includes the promotion of affordable housing opportunities and homeownership, specifically for buyers not served by traditional underwriting. Then, as now, FHA facilitated access to credit for borrowers from lenders and also increased investor confidence to purchase mortgages.34

FHA’s market share has declined in the years since the Great Recession. Lower-risk borrowers have found lower mortgage pricing in a recovering conventional market. As the administration’s housing finance reform plan stated, “When the economy is strong and markets are well-functioning, HUD must avoid competing with other government-supported programs and private capital, and take steps to provide housing finance support to low- and moderate-income families that cannot be fulfilled through traditional underwriting.”35 Additional FHA lending at this point may exacerbate home price appreciation.36

At the same time, lenders have lifted credit overlays that restricted higher-risk borrowers from obtaining FHA insurance. Together, these trends have increased the average credit risk of more recent FHA endorsements. However, FHA risk remains substantially lower than it was before the Great Recession. Each forward loan book of business for the past 10 years has had a positive economic value, with an average credit subsidy rate of –3.89 percent.

Pandemic Recovery

After the longest economic expansion in American history, FHA’s MMI Fund is in a strong position to weather the economic turmoil stemming from the COVID-19 pandemic. According to the FY 2019 actuarial review, the economic net worth of the MMI Fund reached an all-time high of $62 billion, and the capital ratio was 4.8 percent, the highest level since 2007. Excluding reverse mortgages, the MMI Fund’s economic value would be $66.6 billion, with a capital ratio of 5.4 percent. The report estimates that a “protracted slump” or “severely adverse” economic scenarios would create losses of 5.2 percent and 6.9 percent, respectively, of forward loan insurance in force. Yet the fund’s claims-paying capacity (its capital resources and the present value of projected revenue) stood at 8.2 percent, sufficient to weather even another Great Recession-level event.37 The most recent budget estimates indicate that the fund holds $72.4 billion in capital resources, of which $17.5 billion is held in the financing account for expected losses and $54.9 billion is held in the capital reserve account.38 Before the outbreak of the pandemic, the FY 2020 forward loan book of business was projected to have a credit subsidy rate of –2.27 percent.

Figure 6. Purchase Mortgage Applications in the Pandemic

NSA=Non-Seasonally Adjusted
Source: Mortgage Bankers Association®, Weekly Mortgage Applications Survey.

Projected losses and net worth, however, are highly dependent on forecasted house price appreciation, which is a lagging indicator of the strength of the economy and health of the MMI Fund. “Because the MMI Fund Capital Ratio is so closely tied to [house price appreciation], it shares the same tendency to overstate, then understate swings in the economy.”39 The Federal Housing Finance Agency’s purchase-only house price index rose more than 5.7 percent in the four quarters ending in March. But the future of the housing market through the COVID-19 pandemic and its aftermath is extremely uncertain.

At the start of 2020, homebuying rates were slightly above average. The total number of homes sold in January and February was nearly 10 percent above the average in the same months between 2000 and 2019. By May, however, home sales had plummeted to 30 percent below normal. The Pending Homes Sales Index from the National Association of REALTORS® and the Weekly Mortgage Applications Survey by the Mortgage Bankers Association indicate a substantial rebound, suggesting that the pandemic delayed rather than depressed the 2020 homebuying season (figure 6).

FHA has taken several steps to ensure that mortgage credit remains available during the crisis. FHA modified its property valuation policies to allow exterior and desktop appraisals for most single-family forward loans through August 2020 to facilitate social distancing.40 FHA will also insure qualified loans that were underwritten following FHA standards but placed into forbearance before endorsement due to financial hardship related to the pandemic.41 Excluding streamline refinances, FHA endorsed nearly 231,000 loans in the second quarter of 2020, nearly identical to the number endorsed during the same period a year earlier. However, higher-risk borrowers have been negatively affected; endorsements to borrowers who spend more than half of their income on debt payments were down 14 percent, and borrowers with credit scores of less than 620 were down 34 percent. The extent to which these patterns are caused by reduced demand for mortgage credit among these borrowers or the return of credit overlays by lenders is not clear. As of July 2020, lending to first-time homebuyers and minority borrowers has not suffered. FHA is also supporting the mortgage market by allowing existing borrowers access to historically low interest rates through refinancing. More than 81,000 FHA borrowers utilized a streamline refinance in the second quarter to reduce their interest rate by 2.5 percentage points on average, lowering principal and interest payments by $152 per month.

Figure 7. Housing Payment Burden

Sources: S&P/Case-Shiller National Home Price Index; Freddie Mac, Primary Mortgage Market Survey; Bureau of Labor Statistics, Average Weekly Earnings of Private Employees.

The pandemic will likely cause significant economic disruption over the next few years. It took a full decade after the Great Recession for the U.S. gross domestic product to return to its potential as estimated by the Congressional Budget Office (CBO). CBO now forecasts that the economy will recover to its prepandemic level by mid-2022, but it will again remain below potential with elevated unemployment.42 Fannie Mae forecasts that home sales will be down 7 percent from the previous year, rebounding in 2021 but remaining 4 percent lower.43

The pandemic may also exacerbate existing trends in housing affordability. Figure 7 compares two measures of housing costs. The first shows the ratio of home values to the average weekly earnings of production and nonsupervisory workers, indexed to the average ratio between 1987 and 2019. The second shows a similar index, but it captures the effect of mortgage interest rates on monthly housing payments. In early 2020, home prices relative to incomes were more than 10 percent higher than their long-run average, but the financing cost was roughly 20 percent below average. This divergence reflects a constrained housing supply that is driving up values but is offset by low interest rates. These trends are likely to continue. New home construction rates never fully recovered from the Great Recession. At the same time, Fannie Mae predicts that the average interest rate on a conventional 30-year fixed-rate mortgage will continue to fall to less than 3 percent through 2021. Low interest rates greatly benefit borrowers who can qualify for mortgage credit, but higher home values require a larger downpayment, which creates a wealth barrier to homeownership. By insuring against the risk of default associated with low downpayment lending, FHA allows more households to take advantage of historically low financing costs.

Future house prices will be determined by whether the economic disruption has a greater effect on housing supply or housing demand. Fannie Mae forecasts that home prices will continue to rise, albeit more modestly than before. CoreLogic, however, predicts that prices will fall nearly 7 percent over the next year.44 CoreLogic also anticipates widespread home price declines affecting every state. If a significant downturn in housing occurs, then FHA will likely be called on once again to stabilize the economy, as it has done repeatedly over the past 86 years.

— Kevin A. Park, HUD Staff

1. Price Fishback, Jonathan Rose, and Kenneth Snowden. 2013. Well Worth Saving: How the New Deal Safeguarded Home Ownership, Chicago, IL: University of Chicago Press.
2. Robert Shiller. 2020. "U.S. Home Price and Related data, for Figure 3.1," in Robert J. Shiller, Irrational Exuberance, 3rd. Edition, Princeton University Press, 2015, as updated by author.
3. Michael Darby. 1976. "Three-and-a-Half Million U.S. Employees Have Been Mislaid: Or, an Explanation of Unemployment, 1934-1941," Journal of Political Economy 54:1, 1–16.
4. David Wheelock. 2008. "The Federal Response to Home Mortgage Distress: Lessons from the Great Depression," Federal Reserve Bank of St. Louis Review 90:3, 133–48.
5. Marriner Eccles. 1951. Beckoning Frontiers: Public and Personal Recollections, Alfred A. Knopf, 151.
6. Federal Housing Administration. 1935. "First Annual Report of the Federal Housing Administration," Washington DC: United States Government Printing Office, 14.
7. Edward Golding, Edward Szymanoski, and Pamela Lee. 2014. "FHA at 80: Preparing for the Future," U.S. Department of Housing and Urban Development.
8. Edward E. Leamer. 2007. "Housing IS the Business Cycle," National Bureau of Economic Research, Working Paper No. 13428.
9. For comparison, private mortgage insurance companies are typically required by state regulators to have risk-to-capital ratios of 25:1 (i.e., capital ratio of 4%) and the GSEs require 18:1 (5.6%); however, private mortgage insurance typically covers 35 percent or less of the original loan amount while FHA insures the full amount. The difference in coverage makes the private mortgage insurance capital ratio requirement less applicable to FHA. Price Waterhouse. 1990. "An Actuarial Review of the Federal Housing Administration's Mutual Mortgage Insurance Fund."
10. Government Accountability Office. 2017. "Federal Housing Administration: Capital Requirements and Stress Testing Practices Need Strengthening," GAO- 18-92.
11. U.S. Department of Housing and Urban Development. 2019b. "Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund Fiscal Year 2019."
12. Price Waterhouse, 30.
13. Government Accountability Office, 19–20.
14. Government Accountability Office.
15. Federal Housing Finance Agency. 2019. "Fannie Mae and Freddie Mac Single-Family Guarantee Fees in 2018."
16. The example from FHFA includes capital requirements between 2 and 5 percent, with after-tax returns between 9 and 15 percent. The resulting cost of capital ranges from 28 to 115 basis points compared to only 4 basis points to cover expected credit-related losses. Federal Housing Finance Agency. 2014. "Fannie Mae and Freddie Mac Guarantee Fees: Request for Input."
17. Harold Bunce, Charles Capone, Sue Neal, William Reeder, Randall Scheessele, and Edward Szymanoski. 1995. "An Analysis of FHA's Single-Family Insurance Program," U.S. Department of Housing and Urban Development.
18. Elliot Anenberg and Daniel Ringo. 2019. "The Propagation of Demand Shocks Through Housing Markets," Federal Reserve Board, Finance and Economics Discussion Series, Working Paper 2019-084.
19. U.S. Department of Housing and Urban Development. 2019a. "Housing Finance Reform Plan ," 8.
20. Mark Zandi and Cristian deRitis. 2010. "What if there were no FHA ," Moody's Analytics.
21. Kevin Park. 2017. "Temporary Loan Limits as a Natural Experiment in Federal Housing Administration Insurance," Housing Policy Debate 27:3, 449–66.
22. Andrew Holmes and Paul Horvitz. 1994. "Mortgage Redlining: Race, Risk, and Demand," The Journal of Finance 49:1, 81–99; Brent Ambrose, Anthony Pennington-Cross, and Anthony Yezer. 2002. "Credit Rationing in the U.S. Mortgage Market: Evidence from Variation in FHA Market Shares," Journal of Urban Economics 51:2, 272–94; Wei Li and Laurie Goodman. 2014. "Measuring Mortgage Credit Availability Using Ex-Ante Probability of Default," Urban Institute.
23. Kevin Park. 2016. "FHA Loan Performance and Adverse Selection in Mortgage Insurance," Journal of Housing Economics 34, 82–97.
24. Atif Mian and Amir Sufi. 2009. "The Consequences of Mortgage Credit Expansion: Evidence from the U.S. Mortgage Default Crisis," The Quarterly Journal of Economics 124:4, 1449–96; Adam Levitin and Susan Wachter. 2010. "Explaining the Housing Bubble," Georgetown University Law Center, Business, Economics and Regulatory Policy Working Paper Series, Research Paper 1669401; James Kahn and Benjamin Kay. 2019. "The Impact of Credit Risk Mispricing on Mortgage Lending During the Subprime Boom," Federal Reserve Board, Finance and Economics Discussion Series, Working Paper 2019-046; Neil Bhutta and Benjamin Keys. 2018. "Eyes Wide Shut? The Moral Hazard of Mortgage Insurers During the Housing Boom," National Bureau of Economic Research, Working Paper 24844.
25. Wayne Passmore and Shane Sherlund. 2018. "The FHA and the GSEs as Countercyclical Tools in the Mortgage Market," Federal Reserve Bank of New York Economic Policy Review 24:3, 28–40.
26. Ibid., 37.
27. Private mortgage insurance, which typically covers 35 percent or less of the loan amount, is automatically cancelled when the amortized loan balance is scheduled to reach 78 percent of the original property value under the Homeowners Protection Act of 1998. Even though FHA insurance insures the full amount of the loan for the life of the loan, it implemented a similar premium cancellation policy in 2001 (Mortgagee Letter 2000-38). The policy was rescinded in 2013 (Mortgagee Letter 2013-04).
28. Integrated Financial Engineering, Inc. 2016. "Actuarial Review of the Federal Housing Administration Mutual Mortgage Insurance Fund Forward Loans for Fiscal Year 2016," U.S. Department of Housing and Urban Development.
29. John Weicher. 2014. "FHA in the Great Recession: Rebalancing its Role," Housing Policy Debate 24:3, 638.
30. Kevin Park. 2020. "Choice, Capital, and Competition: Private Mortgage Insurance Application and Availability," Housing Policy Debate 30:2, 137–63.
31. Roberto B. Avery, Neil Bhutta, Kenneth P. Brevoort and Glenn B. Canner. 2010. "The 2009 HMDA Data: The Mortgage Market in a Time of Low Interest Rates and Economic Distress," Federal Reserve Bulletin 96, 39–77.
32. Edward Szymanoski, William Reeder, Padmasini Raman and John Comeau. 2012. "The FHA Single-FamilyInsurance Program: Performing a Needed Role in the Housing Finance Market," U.S. Department of Housing and Urban Development, Housing Finance Working Paper No. HF-019, 1.
33. U.S. Department of Housing and Urban Development 2019a, 4.
34. Ibid., 6.
35. Ibid., 4.
36. Morris Davis, Stephen Oliner, Tobias Peter, and Edward Pinto. 2019. "The Impact of Federal Housing Policy on Housing Demand and Homeownership: Evidence from a Quasi-Experiment," American Enterprise Institute, Working Paper 2018-01.
37. U.S. Department of Housing and Urban Development 2019b.
38. U.S. Department of Housing and Urban Development. 2020. "FHA Single Family Mutual Mortgage Insurance Fund Programs, FY 2020 Q2 Quarterly Report to Congress."
39. U.S. Department of Housing and Urban Development 2019b, 73.
40. U.S. Department of Housing and Urban Development. 2020. "Mortgagee Letter 2020-05: Re-verification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19," 27 March;
    U.S. Department of Housing and Urban Development. 2020. "Mortgagee Letter 2020-20: Re-Extension of the Effective Date of Mortgagee Letter 2020-05, Reverification of Employment and Exterior-Only and Desktop-Only Appraisal Scope of Work Options for FHA Single Family Programs Impacted By COVID-19," 29 June.
41. U.S. Department of Housing and Urban Development. 2020. "Mortgagee Letter 2020-16: Endorsement of Mortgages under Forbearance for Borrowers Affected by the Presidentially-Declared COVID-19 National Emergency consistent with the Coronavirus Aid, Relief, and Economic Security (CARES) Act," 4 June.
42. Congressional Budget Office. 2020. "An Update to the Economic Outlook: 2020 to 2030."
43. Fannie Mae. 2020. "Economic and Housing Outlook, July 2020."
44. CoreLogic®. 2020. "Prepare for a Cooldown: CoreLogic Reports Home Prices Were Up in May, but Could Slump Over the Summer," 7 July press release.