What
is the Federal Housing Administration?
The
Federal Housing Administration, generally known as "FHA", provides
mortgage insurance on loans made by FHA-approved lenders throughout
the United States and its territories. FHA insures mortgages on
single family and multifamily homes including manufactured homes
and hospitals. It is the largest insurer of mortgages in the world,
insuring over 34 million properties since its inception in 1934.
What
is FHA Mortgage Insurance? FHA
mortgage insurance provides lenders with protection against losses as the result
of homeowners defaulting on their mortgage loans. The lenders bear less risk because
FHA will pay a claim to the lender in the event of a homeowner's default. Loans
must meet certain requirements established by FHA to qualify for insurance. Why
does FHA Mortgage Insurance exist? Unlike
conventional loans that adhere to strict underwriting guidelines, FHA-insured
loans require very little cash investment to close a loan. There is more flexibility
in calculating household income and payment ratios. The cost of the mortgage insurance
is passed along to the homeowner and typically is included in the monthly payment.
In most cases, the insurance cost to the homeowner will drop off after five years
or when the remaining balance on the loan is 78 percent of the value of the property
-whichever is longer. How
is FHA funded? FHA
is the only government agency that operates entirely from its self-generated income
and costs the taxpayers nothing. The proceeds from the mortgage insurance paid
by the homeowners are captured in an account that is used to operate the program
entirely. FHA provides a huge economic stimulation to the country in the form
of home and community development, which trickles down to local communities in
the form of jobs, building suppliers, tax bases, schools, and other forms of revenue.
The
History of FHA Congress
created the Federal Housing Administration (FHA) in 1934. The FHA became a part
of the Department of Housing and Urban Development's (HUD) Office of Housing in
1965. When
the FHA was created, the housing industry was flat on its back:
- Two
million construction workers had lost their jobs.
- Terms
were difficult to meet for homebuyers seeking mortgages.
-
Mortgage loan terms were limited to 50 percent of the property's market value,
with a repayment schedule spread over three to five years and ending with a balloon
payment.
- America
was primarily a nation of renters. Only four in 10 households owned homes.
During
the 1940s, FHA programs helped finance military housing and homes for returning
veterans and their families after the war. In
the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions
of units of privately-owned apartments for elderly, handicapped and lower income
Americans. When soaring inflation and energy costs threatened the survival of
thousands of private apartment buildings in the 1970s, FHA's emergency financing
kept cash-strapped properties afloat. The
FHA moved in to steady falling home prices and made it possible for potential
homebuyers to get the financing they needed when recession prompted private mortgage
insurers to pull out of oil producing states in the 1980s. By
2001, the nation's homeownership rate had soared to an all time high of 68.1 percent
as of the third quarter that year.
The
FHA and HUD have insured over 34 million home mortgages and 47,205
multifamily project mortgages since 1934. FHA currently has 4.8
million insured single family mortgages and 13,000 insured multifamily
projects in its portfolio.
In
the more than 60 years since the FHA was created, much has changed and Americans
are now arguably the best housed people in the world. HUD has helped greatly with
that success. |