The Federal Housing Administration is a government agency which insures loans made by its approved lenders in all of the United States including the territories. The FHA insures mortgages on single, multi family and manufactured homes and hospitals. This agency insures over 34 million properties and is the largest mortgage insurer in the world since its inception in 1934.
The insurance covers losses on loans where borrowers have defaulted in payments on their mortgage loans. These lenders are secured and bear less risk because the FHA pays when the default occurs. While conventional loans have strict underwriting guidelines, FHA is not as strict and requires potential homeowners to make only a small down payment. They are more flexible in calculating household and debt equity ratios. The cost of this insurance in usually included in the monthly payments. And the good news is that the insurance cost will be reduced after about five years when the loan balance is 78% of the value of the property, whichever is longer.
It is interesting to know that FHA generates its own revenues so it does not cost the taxpayers any money. The insurance premiums collected from the homeowners are used to operate the program in it’s entirely. The intent of the FHA is to provide home ownership to as many qualified home owners as possible throughout the country by building communities and creating jobs, increasing revenues of local suppliers, improving the tax bases on schools and many other forms of revenue generation.
When the Federal Housing Administration was created it was part of the Housing and Urban Development (HUD), Office of Housing in 1965. During that time the housing industry was struggling tremendously. Over two million construction workers had lost their jobs. It was difficult for potential homeowners to meet their terms and conditions of their mortgages. Mortgage loan terms were restricted to 50% of property values and the repayment plans spanned from three to five years with a balloon payment at the end. This was around the time when America was generally a renting nation. Only four of 10 households owned homes at that time.
During the 1940’s the FHA assisted in financing veterans who were returning form the war. Inflation was rising. In the 1950, through the 1970’s, the FHA financing helped to construct millions of homes and private apartments including lower income citizens and the handicapped. When inflation and energy costs became a big threat to these apartment dwellers, FHA financing kept these properties from foreclosure.
In the 1980’s when homes prices were in decline, the FHA stepped in and provided financing as the private mortgage companies were exiting from the financing business. Around 2001, homeownership rose to 68.1 percent by the third quarter that year.
FHA and HUD had provided valuable financing to the American citizen over the years as they have insured over 34 million home mortgages and over 47,205 multifamily homes mortgages since 1934. Currently, the Federal Housing Administration has insured over 4.8 million single family homes and over 13,000 multifamily homes.