Immergluck and the Evolution of the FHA

Some might like to blame George Bush’s “ownership society,” with its emphasis on homeownership as a cure-all for social ills of all kinds, for the intrusion of the federal government into the housing and mortgage markets. But as Dan Immergluck explains in his recent article, government agencies – particularly the Federal Housing Administration (FHA) – have played significant, and varied, roles in homeownership since World War II.

In the study, Immergluck evaluates the evolution of the FHA, which insures mortgages in order to expand access to mortgage markets for potential homeowners with low credit scores. Immergluck finds that FHA lending was crucial during the 2008 housing crisis, when FHA-insured loans made up 40% of the mortgage market, the highest share since WWII. This peak followed a decline to 4.5% as subprime loans boomed prior to the crisis. Without the FHA, the housing crisis would have been far worse.

Immergluck finds that the likelihood of a mortgage having FHA insurance depends on credit score, regional housing price trends, and neighborhood demographics. Importantly, writes Immergluck, odds increase in predominantly black zip codes.

The study reminds that, though some questioned the need for the FHA as subprime lending proliferated in the early 2000s, the agency was a crucial lender of last resort that was also able to provide stability to local housing markets as the private mortgage industry collapsed. But Immergluck also cautions that his data reaffirm the darker side of the mortgage market that researchers have investigated for years: the resurgent FHA was particularly active in African American zip codes, suggesting that conventional loan originators were avoiding these areas. FHA lending, it seems, is both a blessing and a sign that all isn’t well in the housing market.