Throughout the last decade, mortgage markets experienced both a considerable decline and a considerable increase in the share of the market served by the FHA. Concerns have grown about the solvency of the program and about the access to credit of the borrowers served by the FHA market. These concerns are due, at least in part, to the evolving distribution of loans in the FHA portfolio and uncertainty about future patterns of lending. This paper attempts to explain FHA lending patterns over the past decade, particularly the dramatic downs and ups of FHA lending. We pay particular attention to the drivers of these changes, and the implications of these changes for FHA lending, mortgage markets, and associated public policy initiatives.

While FHA market share has grown rapidly, concerns about the program have also grown. A major issue has been the continued solvency of the FHA program. According to Inside FHA Lending, September 14, 2012, “As of November 2011, the FHA’s capital reserve fund for unexpected losses was estimated at 0.24 percent – far short of the 2.0 percent cushion required by law. The MMI Fund is not projected to meet its statutory minimum requirement until 2015.” The House of Representatives recently passed the FHA Fiscal Emergency Solvency Act of 2012. (H.R. 4264) to help insure that the FHA remains solvent and does not become a taxpayer bailout.