by Ethan Handelman, National Housing Conference
This Sunday’s Washington Post editorial struck a note of caution about the Federal Housing Administration (FHA), which has played a critical role in keeping mortgage credit available during the housing downturn. FHA expanded to fill the vacuum created when private mortgage capital fled the market, thereby filling a much greater share of the market than it had previously. FHA has also historically been a money-maker for the federal government, earning annual profits from its mortgage insurance premiums that helped reduce pressure on federal appropriations.
The Post editorial raises valid concerns—we should be careful that the emergency role FHA took on does not become a permanent state of affairs. The primary way to do that, however, is not via the government’s management of FHA, but by making its expanded role unnecessary. If capital were flowing into mortgages efficiently outside of FHA, government could safely start ratcheting back the FHA flow. The lesson is that we should get to work fixing mortgage finance so that it serves the market broadly and manages systemic risk effectively.
NHC put forward principles for guiding mortgage finance reform nearly three years ago, followed by more specific principles for the multifamily mortgage finance sector. Despite a thoughtful white paper from the Treasury department about a year ago and some limited legislative action, progress toward a solution has been slow. More is needed.