Journal Article

The FHA and the GSEs as countercyclical tools in the mortgage markets

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; mortgages; government policy; Great Recession;

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

Access Documents


Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Economic Policy Review

Publication Date: 2018

Issue: 24-3

Pages: 28-40