The Federal Housing Administration (FHA) is a division within the Department of Housing and Urban Development (HUD). Founded in 1934 to revive a housing industry leveled by the Great Depression, FHA sought to stimulate homeownership by providing mortgage insurance and regulating interest rates. Over time, the agency has contributed to a dramatic increase in the number of homeowners, across a diverse income-scale. Early programs especially increased the market for single family homes, while special housing initiatives for veterans in the post-WWII era - and for the elderly, disabled and lower-income buyers in subsequent decade - expanded untapped or difficult market areas. Since its inception, FHA has insured 34 million homes, and manages a current insurance portfolio of $400 million. The agency was incorporated into HUD when the latter became a cabinet-level agency in 1965.
The National Housing Act of 1934, signed by President Franklin D. Roosevelt, initiated the FHA home mortgage insurance program, designed to address instability in the housing markets - and damage done by the Great Depression, by promoting buying and lending, and stimulating associated industries like construction. When the FHA was created, only four in ten households owned homes, and limited mortgage loan terms and difficult repayment schedules made the process especially difficult for buyers in the recovering economy.
HUD’s Office of Housing oversees the FHA, which provides a variety of insurance options for qualified loans on existing homes, home construction and repair—for single family and multifamily projects, including hospitals and manufactured housing. The agency holds a current insurance portfolio of $400 billion, and oversees Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that together account for the largest source of housing finance in the U.S. (See HUD's Regulation of Fannie Mae and Freddie Mac for more information). The agency is also responsible for regulation of the Real Estate Settlement Procedures Act, and the manufactured housing industry.
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The agency claims to be “self-supporting,” funded entirely from its mortgage programs and without any taxpayer money. New reform measures should generate revenue for FHA. However, if FHA programs falter for any reason, taxpayers might foot the bill in subsidies. In times of economic distress, the agency has also raised insurance premiums.
1950 - lax oversight at the Department allowed misuse of FHA’s Section 608 (which insured financing for private apartments built for WWII veterans) and resulted in the program’s termination in 1954. (See “History” Section of this article).
Ghetto Shakedown (Time)
The Expanding American Homeownership Act (H.R. 5121, known as FHA “Reform” or “Modernization”) was introduced in the House in April of 2006 with bipartisan support, unanimously approved by the House Financial Services Committee on May 24, 2006, and passed in the House on September 18, 2007. It is now awaiting approval in the Senate. According to the Department, the Act would: eliminate FHA’s current three-percent minimum down payment and offer a new variety of down payment options; create a new risk-based insurance premium structure to match the credit profile of the borrower; and increase and simplify FHA’s loan limits. The proposed reform reflects changes that have alienated FHA in the market, where the income-scale of homeowners has broadened, first-time homebuyers are allowed low down payments, and new construction prices often exceed FHA conforming loan limits.
FHA Housing Stabilization & Homeownership Retention Act (House Committee on Financial Services)
FHA Makeover: The Safe Alternative to Sub-Prime?
Given the increasing sophistication of mortgage markets, many have questioned the logic of keeping FHA programs as a public enterprise, arguing that the private market would lend to “high-risk” borrowers for increasingly low rates just as easily. (FHA borrowers are already serviced by private lenders, but pay a small premium to the agency for coverage in case of default, making the venture risk-free for lenders - thus, in theory, keeping the market steady and liquid).
Minorities, first-time buyers, those with low-credit or who are otherwise classified as “high risk,” are among those most affected by FHA policies - and, in recent years, prone to sub-prime lending practices. According to 2004 Home Mortgage Disclosure Act (HMDA) data, 40 percent of African-Americans and 23 percent of Hispanics pay an interest rate 3% higher than the market rate, while the Center for Responsible lending reports that 51 percent of refinancing lending in African-American neighborhoods are sub-prime. After the fall of the sub-prime market, minorities will be among the groups shut out from access to home mortgage financing. Many are looking to a “modernized” FHA to fill the gap keep the market afloat.
The Federal Housing Administration (FHA) of the Department of Housing and Urban Development, which provides a variety of insurance options for qualified loans on existing homes, home construction and repair, and is also responsible for regulation of the Real Estate Settlement Procedures Act and the manufactured housing industry, has been without a permanent leader since April 2011. Carol J. Galante, who currently serves as Acting Assistant Secretary for Housing-FHA Commissioner, was nominated by President Obama on October 20, 2011, to lead the federal agency on a permanent basis. Although the Senate Banking Committee voted to send her nomination to the Senate floor, some conservative Republicans, charging that the Obama administration has not faced the probability of an FHA bailout, may attempt to prevent her confirmation.