It achieved success with some of its goals and had a mixed record with others. But FHA had one constant over the years. It generally did not need public subsidies to operate. FHA underwriting was always intended to ensure that the FHA would support itself, with its riskier loans subsidized by its less risky ones.
Today’s FHA is suffering from many of the same unrealistic underwriting assumptions that have done in so many subprime lenders as well as Fannie and Freddie. It has also been harmed, like other lenders, by a housing market as bad as any seen since the Great Depression. And thus, the calls to avoid another bailout, like those of Fannie and Freddie. But the FHA is very different from Fannie and Freddie. Fannie and Freddie were chartered by the federal government but were owned by private shareholders. This led to the worst of all possible worlds: privatizing profit when times were good and socializing losses when times were bad. The FHA, on the other hand, is wholly owned by the federal government. If the FHA takes losses to achieve legitimate government policy objectives, that can be an acceptable outcome, even if losses are measured in the billions of dollars.
This paper undertakes a historical examination of the FHA to chart its changing mission over time. The paper will demonstrated that the FHA is capable of achieving goals other than being a lender of last resort, but those additional goals must be clearly set forth with clear metrics of success and failure.