The fall (and rise?) of FHA mortgage lending

  • Share
  • Read Later

I already knew that the subprime mortgage boom of 2003-2006 had taken a lot of business away from the Federal Housing Administration. But looking through the actual numbers in a June 2007 GAO report on the FHA’s declining market share (pdf!) was still a revelation. In the housing bubble epicenters of Arizona, California, and Nevada in particular, the FHA went from being almost a quarter of the mortgage market to almost nothing in just four or five years. Here’s the graphic version:

Graphic by Feilding Cage/

What does this mean? I think it means that a government program that had for decades done a tolerably good job of making home ownership possible for people who don’t make lots of money was pushed aside by aggressive private competitors. Those private competitors won that business by making lots of really crazy loans on which borrowers are now defaulting en masse. And the Senate is planning to debate a bill this afternoon that would enable the FHA to take over a few hundred thousand (or more) of those loans.

There’s a nice symmetry to it, don’t you think?