Idea of the Day: Americans Should Get Behind the Federal Housing Administration

October 11, 2012

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For close to 80 years the Federal Housing Administration has helped millions of working-class families achieve homeownership and has promoted stability in the U.S. housing market—all at no cost to taxpayers. The government-run mortgage insurer is a critical part of our economy, helping first-time homebuyers and other low-wealth borrowers access the long-term, low down-payment loans they need to afford a home.

More recently, the agency prevented a complete collapse in the housing market, likely saving us from a double-dip recession. As private investors retreated from the mortgage business in the wake of the worst housing crisis since the Great Depression, the Federal Housing Administration increased its insurance activity to keep money flowing into the market. Without the agency’s support, it would have been much more difficult for middle-class families to get a home loan since the crisis began. Home prices would have plummeted even further, households would have lost much more wealth than they already did during the crisis, and even more families would have lost their homes to foreclosure.

But the agency was not immune to the housing crisis. Today it faces mounting losses on loans that originated as the market was in a freefall. Housing markets across the United States appear to be on the mend, but if that recovery slows, the agency may soon require support from taxpayers for the first time in its history.

If that were to happen, any financial support would be a good investment for taxpayers. Over the past four years, the Federal Housing Administration’s efforts saved families billions of dollars in home equity (a 25-percent drop in home prices translates to about $3 trillion in lost property values today), kept interest rates from skyrocketing (and with them monthly mortgage payments), and helped millions of workers keep their jobs. Any support would amount to a tiny fraction of the agency’s contribution to our economy in recent years.

For more on this topic, please see:

• The Federal Housing Administration Saved the Housing Market by John Griffith