Abstract

The implosion of the mortgage market during 2007-2008 raises fundamental questions about the American system of mortgage finance, insurance, and credit guarantees for housing. This article analyzes federal programs providing these housing insurance and credit guarantees in the broader context of U.S. housing policy. It specifically examines activities managed by the Federal Housing Administration (FHA), the Veterans’ Administration (VA), and the Government Sponsored Enterprises (GSEs). It reviews and quantifies the public resources devoted to these programs – the market value of the federal insurance and credit guarantees provided - and quantifies the crucial importance of credit guarantees in the federal system of housing support. The article then considers the activities of the FHA in more detail, focusing on the historical development of its role as supplier and guarantor of credit. It considers the rationale for these activities in the light of competition in the mortgage market, recent failures in the market for housing credit, and the provisions of the Housing and Economic Recovery Act of 2008. In addition, a reinvigorated FHA mortgage program could provide a comparison and a benchmark for evaluating predatory lending in the primary housing and mortgage markets.