The FHA and the GSEs as Countercyclical Tools in the Mortgage Markets

13 Pages Posted: 10 Dec 2018

See all articles by S. Wayne Passmore

S. Wayne Passmore

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section

Shane M. Sherlund

Federal Reserve Board of Governors

Date Written: December 2018

Abstract

The authors examine the connection between government mortgage programs and economic outcomes during and after the financial crisis. They find a strong correlation between counties that participated more heavily in Federal Housing Administration (FHA)/Veterans Affairs (VA) and government-sponsored enterprise (GSE) mortgage lending before the crisis and better economic outcomes during and after the crisis. Although the financial crisis was a substantial shock to all counties, those more reliant on FHA/VA or GSE lending experienced smaller increases in unemployment rates; smaller declines in new automobile purchases, home prices, home sales, and mortgage purchase originations; and smaller increases in mortgage delinquency rates. Moreover, the authors find that the FHA was a more effective countercyclical tool during and after the 2007-09 financial crisis than the GSEs. This finding may have implications for GSE reform: Greater access to government backing during crises may mitigate tighter underwriting standards and rising securitization costs in mortgage markets.

Keywords: financial crisis, Great Recession, mortgages, government policy

JEL Classification: G01, G21, G28, G23, R30, R38

Suggested Citation

Passmore, Stuart Wayne and Sherlund, Shane M., The FHA and the GSEs as Countercyclical Tools in the Mortgage Markets (December 2018). Economic Policy Review, Vol. 24, No. 3, 2018. Available at SSRN: https://ssrn.com/abstract=3298959 or http://dx.doi.org/10.2139/ssrn.3298959

Stuart Wayne Passmore (Contact Author)

Board of Governors of the Federal Reserve - Household and Real Estate Finance Section ( email )

Washington, DC 20551
United States
202-452-6432 (Phone)
202-452-3819 (Fax)

Shane M. Sherlund

Federal Reserve Board of Governors ( email )

20th and C Streets, NW
Mailstop 93
Washington, DC 20551
United States
202-452-3589 (Phone)
202-728-5887 (Fax)

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