Housing Access and Risk Management: Competing Directives in the Federal Housing Administration

Abstract

The Federal Housing Administration (FHA) in the United States was originally established to stabilize a crippled mortgage market in the early days of the Great Depression. Seventy-five years later the agency again serves as a backstop in the most recent downturn during the financial crisis and subsequent recession in the housing market. Since inception, providing insurance to mortgage lenders and investors against loss from default has been, and continues to be, the primary instrument in the implementation of its charge. The FHA insures lenders and investors of mortgages against the risk that the borrowers of those funds default. As an agency within the U.S. Department of Housing and Urban Development (HUD), the FHA is also indirectly charged with contributing to HUD's overriding objective of providing access to affordable housing. This policy dichotomy, coupled with the recent trough in the housing cycle, threatens the future solvency and capacity of the FHA.