The Federal Housing Administration (FHA) is the largest insurer of mortgages in the world, insuring 34 million properties comprising single family homes, multi-family homes, manufactured homes, and other types of properties. In a nutshell, FHA insurance protects lenders against potential losses they may incur as a result of a borrower defaulting on the loan. This allows lenders to take chances on borrowers they might not otherwise make loans to, and ensures that as many Americans as possible have access to homeownership.
But Americans didn’t always have the benefit of FHA. Before the FHA was created in 1934, the housing industry had hit an all-time low. Not only were two million construction workers out of work, but it was extremely difficult for homebuyers to secure a mortgage due to stringent requirements. In addition, borrowers had to have an immense amount of cash on hand to buy a home, and had to prove to lender that they could pay off the entire note relatively quickly. That’s because lenders would only loan up to 50% of the property’s market value, and traditional terms at that time stipulated that loans had to be repaid over a course of three to five years, with a balloon payment at the end of the term. As a result, only four in ten American households owned homes. The rest of Americans rented their homes.
The FHA first made a significant impact in the 1940s, when it helped to facilitate financing of military housing, as well as homes for returning veterans, following the war. During the 1950s, 1960s, and 1970s, FHA helped finance millions of apartment units owned by lower-income Americans, as well as by the elderly and handicapped. These apartment buildings were in dire need of saving during he 1970s, when escalating inflation and rising energy costs almost did away with them. However, the FHA stepped in and saved them with emergency financing.
The 1980s witnessed a huge recession. Housing prices plummeted, and all of a sudden private mortgage insurers were refusing to insure homes in oil producing states. At this point the FHA stepped in to counterbalance falling home prices, and made it possible for homebuyers to secure loans despite the recession and lack of PMI.
Just recently, FHA stepped in again with special loan programs designed to save homeowners who had taken advantage of subprime adjustable mortgage loans—homeowners who were now unable to pay their mortgages due to rising interest rates—from foreclosure.
Today, thanks to the FHA, more than two-thirds of American families own homes. Beginning more than 60 years ago, since its inception in 1934, FHA has insured more than 34 million home mortgages and close to 50,000 multi-family mortgages.
