Overview of the FHA

The Federal Housing Administration (FHA) is a government-owned corporation, established in 1934 to improve housing standards and promote the American Dream of homeownership in America. In 1965, the FHA became part of the Department of Housing and Urban Development (HUD). In the 1930s, when the country was suffering the ravages of the Great Depression, the housing and mortgage markets were in serious trouble, and FHA was created to stabilize those markets, improve the economy, and promote homeownership.

Minority borrowers, first-time buyers, or borrowers who have spotty credit or not enough down payment to qualify for a conventional mortgage, have benefited from FHA programs.

The FHA is funded from the income it generates from receiving mortgage premiums, and as such, does not present any burden on the taxpayers, since it is entirely self-funded. Originally created during the Great Depression, the FHA has been an enduring program designed to further the social goal of homeownership.

Since the 1930s, the government has recognized that the mortgage market and homeownership is a very significant part of the economy, and that by creating programs to promote homeownership, the economy can be stimulated. The Federal Reserve Board also uses this theory in its manipulation of interest rates; when the economy is stumbling, the Fed cuts interest rates so more people will get new mortgages or refinance existing ones.

Before the FHA, it was very difficult to procure a mortgage, and usually buyers would have to have a 50 percent down payment, and the repayment term was usually limited to five years.

The FHA has been very active since its inception in several areas. Besides having a program through which ordinary working people can buy homes, the FHA also helped finance homes for veterans after World War Two; specifically, aiding in the creation of privately-owned apartments designed for lower income, handicapped, and elderly citizens.

In addition, the FHA provided emergency financing to apartment buildings during the energy crisis of the 1970s, and also stepped in during the recession of the 1980s when private mortgage insurance was unavailable in many oil-producing states.