Economic Policy Review
The FHA and the GSEs as Countercyclical Tools in the Mortgage Markets
Volume 24, Number 3
December 2018

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

Authors: Wayne Passmore and Shane M. Sherlund

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.

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AUTHOR DISCLOSURE STATEMENT(S)
Wayne Passmore
I declare that I have no relevant or material financial interests that relate to the research described in our paper.

Shane M. Sherlund
I declare that I have no relevant or material financial interests that relate to the research described in our paper