The F.H.A.'s Countercyclical Contribution - NYTimes.com Let's talk about countercyclicality and let's do so from the perspective of the Federal Housing Administration, a little-known agency within the Department of Housing and Urban Development whose mission since 1934 has been to help home buyers take out affordable loans to purchase low- and moderately-priced homes. One of the more unfortunate aspects of the political response to the Great Recession has been willful ignorance about the need for policy interventions to ramp up in response to the downturn. When people become seriously ill, we tend not to jump all over them for going to the hospital. Yet opponents of government intervention continue to object to precisely that dynamic whether it's safety net programs like food stamps or unemployment benefits, or the F.H.A."s temporary expansion of its footprint in the housing market. A bit of background: The Federal Housing Administration doesn't make loans directly to home buyers. It insures their mortgages so that they can get loans that lenders would otherwise not make. Hold your fire - the agency caused neither the housing bubble nor the subprime boom. In fact, since the Great Depression, it has insured the mortgages of over 30 million low-wealth borrowers. And while the agency caused neither the housing bubble nor bust, it did significantly ramp up to help offset the worst of the damage, sharply expanding its market share. For example, as the bubble burst, far too many homeowners faced exploding adjustable-rate mortgages and other forms of steeply increasing teaser rates. The housing agency stepped in and allowed them to refinance from conventional loans into F.H.A.-backed loans with far more sustainable payment terms. It also maintained access to credit for many first-time buyers who were shut out of the private market as lenders flipped from reckless underwriting to prohibitive standards in the wake of the crisis. So yes, F.H.A. loan volumes grew quickly over these years, and in doing so helped stave off more foreclosures and even sharper declines in home prices. Without the F.H.A."s actions, according to estimates by Moody's Analytics, home prices would have fallen another 25 percent nationally. The agency also exposed itself - specifically its fund to cover losses (it is required to have cash on hand to cover at least 2 percent of its holdings) - to greater risk. Because of losses associated with that increased exposure, last year, for the first time in its 80-year history, the F.H.A. had to get a $1.7 billion plug from Congress for its insurance fund. But according to a new review of Federal Housing Administration finances, it is recouping losses and building back reserves as the housing market has gotten off the mat, with home prices rising again and defaults lessening, along with some policy changes at the agency designed to lower its risk. The fund remains $1.3 billion in the red, according to an independent actuary, but it improved by $15 billion last year and is expected to be back to where it is supposed to be by 2015, two years earlier than predicted in last year's audit. What steps has the agency taken to help improve its books? It raised borrowers" fees and significantly tightened lending standards. Tougher underwriting has lowered early defaults to their lowest level in seven years; loan delinquencies and foreclosures are down about 20 percent. Beginning next year, it will reduce its maximum loan amount. Together, all of these changes are and will continue to reduce its market share. In fact, the conventional-to-F.H.A. refinancings described above are down 80 percent from their 2009 peak. So what we have here is an agency ramping up in true countercyclical fashion to meet and push back on a vast market failure. Its ramp-up was not without cost, but it had demonstrably effective results in housing finance, one of the most damaged parts of the economy during the downturn. As its function becomes less needed - as private insurers wake from hibernation - it is pulling back. We live in a moment when government failure - the debut of the Affordable Care Act website - is, or at least recently was, regularly on the front pages. I get it - "if it bleeds, it leads" - and, at least since President Reagan, no one ever went broke attacking government as feckless. But in fact, that meme is often wrong. The safety net programs are highly efficient, as are the very large and highly valued social insurance programs. They too generally performed well over the recession, significantly reducing the growth of child poverty, for example. Put the F.H.A. on that list. It stepped up admirably, without a lot of fanfare, and did what it was designed to do. Now that its efforts are winding down, it deserves a bit of recognition.