What is the Federal Housing Administration?
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?
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?
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.
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
During the 1940s, FHA programs helped finance military housing and homes
for returning veterans and their families after the war.
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.
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
2001, the nation's homeownership rate had soared to an all time high of
68.1 percent as of the third quarter that year.
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
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.