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Overview:

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.

As FHA experienced a significant loss of market share in the last several years, attention turned towards reform measures to “modernize” its programs, making them more flexible and accessible to a wider range of buyers - while simultaneously providing stability and a safe alternative to sub-prime lending. (See “Debate” and “Reform” sections).

In 2007, FHA added the new “FHA-Secure” refinancing program to help borrowers hurt by the sub-prime crisis.

History:

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.

Starting in the 1940s, FHA began programs to help finance housing for returning veterans and their families. In its Section 608 program, the agency provided mortgage insurance to construct housing for war workers during the war, and then for rental properties to house returning veterans. Designed to counter the postwar housing deficit by easing lenders with a federal guarantee, Section 608 provided insurance for as much as 90% of the mortgage value on rental housing projects. A scandal developed in 1950 following years of abuse by unscrupulous builders - who, in a typical scenario, could procure a high mortgage under the program, build for far less, sell the new property and transfer the mortgage to the new owner, pocketing the sizable difference. Such practices were attributed to lax oversight at the agency and the program was terminated in 1954.

The Housing and Urban Development Acts of 1965 and that of 1968 expanded FHA’s mortgage insurance programs, and charged it with new responsibilities, including the administration of interest rate subsidies and a (then) controversial rent supplement program (whereby disabled, veteran, low-income residents, or those living in substandard housing, and whose income level qualified them for public housing, could pay 25 percent of their income in rent to private or non-profit housing sponsors, with the government picking up the difference until they were able to pay).

In the 1970s, FHA provided emergency financing for housing to those particularly vulnerable to inflation and rising energy costs (elderly, disabled and low-income Americans). During the recession of the 1980s, when housing prices fell and private mortgage insurance receded, the agency helped buyers secure loans. However, comprehensive abuse of the home mortgage insurance and Section 235 homeownership subsidy programs by industry insiders resulted in massive foreclosures. (See Controversy section)

In the time since its founding, the FHA and HUD have insured more than 34 million mortgages, and by 2001, the nation’s homeownership rate hit an all-time high of 68.1 percent. As of 2006, the FHA claimed 4.8 million single family mortgages and 13,000 multifamily projects in its portfolio.

However, conditions in recent years have changed. Amid rising home prices and lending practices that make financing available for buyers with credit constraints, FHA has been pushed out of the market. New reforms promise a “modernized” FHA mortgage insurance system that will cater to the needs of a greater pool of buyers and stabilize the market. (See “Debate” and “Reform” sections for more information)

Lawrence Thompson, who served in senior positions in HUD for more than 25 years, has written an accessible history of HUD, including FHA and the mission to increase homeownership.

A History of HUD (by Lawrence L. Thompson) (PDF)

FHA History

What it Does:

Making Home Affordable.gov

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.

How it works

FHA doesn’t make loans or plan construction, but insures mortgages made by applicants with outside lending institutions - which might offer or insist on the option of FHA insurance, depending on the credit profile of the borrower. The FHA investigates the applicant and makes a risk assessment, and if favorable, insures the lender for a loss of principal if the borrower defaults. The borrower pays an up-front premium of 1.5% of the loan amount (that can be financed) and premium of .50% on the declining balance (premiums paid on FHA loans are significantly higher than that paid on a conventional mortgage, which, with a minimum of 10% down, is generally as low as .5% up front and .3% monthly). In turn, the borrower benefits from the FHA appraisal and a lower interest rate on the mortgage than the lender might have offered without FHA insurance.

Single Family Mortgage Insurance Program

FHA’s standard Section 203(b) program is a continuance of the agency’s founding program, which offers financing to first-time and other buyers who are excluded by the terms of conventional loans. The program was designed to be self-supporting, relying on insurance premiums paid by borrowers (however, as when in the 1980s defaults eroded FHA reserves, the agency raised insurance premiums to restore them).

Under this program, FHA has insured nearly 8,000,000 homes valued at nearly $60 billion, and currently insures a total of about 7 million loans in its $400 billion portfolio (Mortgage 101). Among the most important features are a provision for low down payments (as low as 3%, as opposed to a conventional average nearer to 10% or more, because FHA-insured loans allow borrowers to finance the rest through their mortgage); the option to finance many closing costs, further reducing the up-front costs of purchase; limits the FHA imposes on certain fees (e.g., administrative) charged by mortgage companies; and the limits FHA sets on the loan value. (The cap was recently lifted as part of the President’s economic stimulus package. See Reform section for more information).

Mortgage default insurance: Credit enhancement for homeownership (by Roger Blood, Housing Finance International)

Subsidy Estimates for FHA Mortgage Guarantees (Congressional Budget Office)

See also:

Single Family Housing - including links to Lender insurance program, FHA closing costs simplified, Lender Assessment Subsystem (LASS), Nonprofit programs, and Housing Counselors

Multifamily Housing - including links to About MF business, Multifamily data, Renting, Sec 8 Contract Administration, Notices of Funding Availability , and Hurricane Recovery Resources

Regulatory Programs

- including links to

Interstate Land Sales

Manufactured Housing

Minimum Property Standards

, and

Real Estate Settlement Procedures Act (RESPA)

Where Does the Money Go:

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.

HUD Budget Contains Major Funding Shortfalls (by Barbara Sand, Douglas Rice and Will Fischer, Center on Budget and Policy Priorities)

FHA FY 2009 Budget Proposal (PDF)

Controversies:

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).

1970—Widespread, conspired misuse of the home mortgage insurance and Section 235 homeownership subsidy programs resulted in massive mortgage defaults and foreclosures - and the indictment of realtors, lending institutions, lawyers and some FHA officials on hundreds of criminal acts, including bribery, fraud, conspiracy, and giving false statements to the government.

The Housing and Urban Development Act of 1968 had sought to address racial discrimination and help minorities and poor people living in “high-risk” areas buy homes with either mortgage insurance or subsidized mortgages. A few years into the new programs, however, there were federal Grand Jury investigations and indictments in FHA-administered programs across the country. Professionals involved were essentially fleecing the government through coordinated efforts to inflate reported values of cheap houses in low-income neighborhoods, then to sell them at high prices - leaving FHA to foot the bill when buyers defaulted.

Ghetto Shakedown (Time)

Suggested Reforms:

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.

HUD’s FHA Reform page

New Loan Limits

Effective through December 31, 2008, the new loan limits for FHA and the GSEs are now calculated at 125 percent of HUD’s published median area prices, with a minimum of $271,050 for FHA ($417,000 for the GSEs) and a legal cap of $729,750.

FHA Housing Stabilization & Homeownership Retention Act (House Committee on Financial Services)

Debate:

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).

However, in the wake of the sub-prime crisis, many are looking towards a reformed FHA as a bail-out for the housing industry, one that will provide safe alternatives to risky sub-prime lending.

According to the agency, outdated loan limits and other restrictions account for its recent decline in the market, which currently hovers around 3%: “In many areas of the country, the existing FHA limits are lower than the cost of new construction, eliminating FHA financing as an option for buyers of new homes in those markets. FHA has simply been priced out of the market in other areas, such as California, where FHA insured only about 5,000 home mortgages in all of 2005, down 95 percent from 109,000 in 2000”

Currently FHA requires homeowners to put at least 3% down, with a loan limit of about $363,000. (Recently raised, temporarily, to more than $700,000). Unlike sub-prime loans, FHA mortgages are not traded on Wall Street and subject to erratic conditions, but backed by government bonds. FHA loans typically provide better rates than other sub-prime mortgages, don’t carry prepayment penalties, and most are 30-year fixed rate loans, meaning that the lender won’t make the loan without proof of an ability to make monthly payments. (Accounting, in part, for the sub-prime crisis is the fact that lenders didn’t require a similar proof, but only that borrowers could make payments at the low initial rates of an adjustable-rate mortgage, which would inevitably change and lead to massive foreclosure).

However, since they are administered by a federal agency, FHA-insured loans can be slower and more bureaucratic than their sub-prime counterparts, thus less appetizing to many realtors and borrowers.

Reform measures seek to make the agency and its programs more flexible and consumer-friendly, in part by extending finance options to meet the needs of a diverse range of borrowers. The Expanding American Homeownership Act (H.R. 5121, known as FHA “Reform” or “Modernization”) seeks to expand the breadth of FHA activity by permanently raising loan limits, reducing down payment requirements, and providing more flexibility in insurance premiums to match the credit profile of the buyer. Different versions of the bill passed in the House and Senate in 2007, and differences are expected to be resolved quickly. (See Reform section and CNNMoney article for more information).

HUD News Release

Subprime alternative: FHA reform deal close: Lawmakers say they're optimistic that they'll be able to send a bill to President Bush for his signature by April (by Jeanne Sahadi, CNN Money)

Housing's new day may very well begin with the FHA (by Joseph Lazzaro, Blogging Stocks)

Three U.S. Senators Trying to Block New Federal Housing Rule (by Neil Roland, Bloomberg)

FHA Loan Makes Comeback as Sub-Primes Sink (by Mark Huffman, Consumer Affairs)

How the Federal Housing Administration Affects Homeownership (by Albert Monroe, Harvard University) (PDF)

Urban/Minority Issues

While the FHA has been criticized for early racial and anti-urban biases, targeting programs almost exclusively to white Americans building homes in the suburbs and contributing to the decline of major cities, it is also argued to have made a great impact on urban development since the 1960s, especially for minorities. Writing in 2001, Albert Monroe (See below) noted that FHA insured 18% of all mortgage loans (other figures, including from the agency itself and the National Association of Realtors, put current figures for FHA-insured loans at only 3% of the total mortgage market, down from 13% in the 1990s, as a result of out-pricing. See Reform section of this article for further reading), and nearly one-half of the agency’s metropolitan area business is located in central cities, with 38% of conforming loans within central cities. Additionally, the agency insures a disproportionate number of Black and Hispanic borrowers - both groups together account for almost a quarter of FHA’s business, but less than one-tenth of the conforming mortgage market. Studies have also indicated that FHA lends to a “riskier” pool, characterizing borrowers as younger, more credit-constrained, and living in lower average-incomes and property-valued areas. (Monroe, 2001)

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.

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Comments

Natalie Hazell 5 years ago

I’m hoping that you can either help me or let me know which department(s) of the Federal Government can help me. I’m currently living in the “Quiet Corner” of CT. We are are 10 miles from the Mass border and about 5 miles from the Rhode Island Border. There are no decent doctors here, virtually no Primary Care Doctors and pretty much no specialists. There is very limited public transportation and very little for Senior Citizens to do. I am disabled, 66 years old, live on only my Social Security (1322.00 per month). I am on QMB; which along with Husky and Extra Help from Social Security. I am in a low-income housing for Seniors and Disabled, but still pay $396 per month for a TINY one bedroom. I moved up here 9 years ago to be with my daughter and her family, but my health was much better at the time. Now my health is so bad that I can’t do anything for myself. I have a Personal Care Assistant who does cleaning, showering, taking care of my colostomy, cooking for me, and taking me 50 miles away, several days each month, as well as my local Primary Care, Mental Health Therapist, and for numerous tests and xrays. On top of that, my daughter doesn’t want me here anymore. So, I desperately need to find the best city to live in for people in my situation. I’ve tried several websites but their answers vary drastically. My preference would be somewhere warm, because the cold makes most of what’s wrong with me even worse. If you could possibly help me I would be extremely grateful.

Cynthia McCormick 7 years ago

i live in summerfield town houses in East Hartford, CT and for the past five years i have cage animals and now they want to make it a no pet policy and they had it that their where no cats, dogs, snakes, reptiles. caged animals don't destroy property and the only way you can keep a animal if you have a doctor's note and i find that not fair to other people who want to keep their caged animals. i am asking that we are allowed to keep our caged animals without a doctors note because without my caged pets i will go into a deep depression. my caged pets keep me from going into a deep depression and keeps me functioning and in a happy mood.

Brett 8 years ago

It is interesting to study the different strategies, policies and plans that governments come up with and implement related to homes and housing. The FHA Home Mortgage Insurance Program is very similar, in some respects, to the Canada Mortgage and Housing Corporation Mortgage Loan Insurance. Home mortgage differences are discussed in this article: http://www.brettcairns.com/buy-a-home/mortgages-pre-qualification-pre-approval-approval/ and the Canadian government continues to refine the rules for both high and low ration mortgages.

Mrs armando trevino 8 years ago

I am extremely unhappy with added fees with Nation Star Mortgage. Is it possible to switch to another mortgage reputable co. Without added costs?

juan sixtos 8 years ago

Both my parents went into a program back in the 80s self help enterprise where they had to put in 40hrs a week to build our home in cali anyways we paid the loan off but not the interest I believe so the fedral dept. Held on to the ownership papers till we could pay it off well my mom took out a loan from a realter for 40 thousand dollars we paid like 15 thousand but was unable do to her passing away but the house was valued at 200 thousand but realto kept the house and sold it but he wouldved had to go threw the feds to optian ownership papers but it was only 15 thousand don't we my brothers and I have the remainder of what was left I believe its like 145 thousand hope to hear from you as I would like to pursue it thank you

Robert & Gail Cherry 8 years ago

We are trying to get a Reverse Mortgage on our home of 24 yrs. but we are being told that because our home was not offered through FHA, we can't get approval of Reverse Mortgage of our beloved home. Can you please help us stay in our home as our ages of 77yrs and 72 yrs makes it impossible to move, we need to have our equity in our hands to live more comfortably, thank you.. We need your help

Jim 8 years ago

What's the deal with getting extra money if I'm 70yrs. old and lived in my house for over 25yrs?

Melissa 9 years ago

Hi my name is Melissa Radford I'm on ssi so I don't make much I need help getting in to a place to live iv been living in a motel in west for my doctor prescription me a dog because my son past away a few years ago and they don't allow dog plz some out there can u help me thank u God bless y'all

denis strandberg 10 years ago

I need help trying to find a Leander in nv that knows fha guide lines,I went bk over 2yr ago but bank has never taken house out of my name,do I still meat fha guildlines?

Corrine 10 years ago

I have news for you the State employees in Oregon are stealing the federal money in all programs and they are commiting Elderly and disabled and having Banker's Freeze Account's until they can take over as conservators!!Anyone trying to help are frozen there assets and harrassed by all office!Hud and welfare are all being stolen here and the homes!!!

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Content

Table of Contents
Overview
History
What it Does
Where Does the Money Go
Controversies
Suggested Reforms
Comments
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Founded: 1934

Annual Budget: Self-funded (through insurance premiums)

Employees:

Official Website: http://www.hud.gov/offices/hsg/fhahistory.cfm

Federal Housing Administration

Golding, Edward

Previous Principal Deputy Assistant Secretary

Edward Golding, who served as a senior adviser at the Department of Housing and Urban Development (HUD), was named in March 2015 to head the Federal Housing Administration (FHA), an agency that exercises control over homeowner borrowing costs and has contributed to a dramatic increase in the number of homeowners across a diverse income-scale. Golding took over that position, with the title of HUD principal deputy assistant secretary, on April 7, 2015.

Golding grew up in Cincinnati, Ohio, where he attended Walnut Hills High School from 1967 to 1973. He went on to earn an AB in applied mathematics from Harvard University in 1976 and a Ph.D. in economics from Princeton University in 1982. He subsequently took teaching positions as an assistant professor at the University of Florida and at the Wharton School of the University of Pennsylvania.

It was during the savings and loan crisis, which began in 1986, that Golding launched his career in mortgage finance with a job at the Federal Home Loan Bank Board. In July 1989, he joined Freddie Mac as a senior economist. During his 23 years there, he held a number of executive positions in its Models, Missions and Research division, including senior vice president of economics and policy, and senior VP of economics and strategic analysis, as well as program executive of the Making Home Affordable program.

From 2007 to 2012, Golding returned to his alma mater, Princeton, to teach a spring course on financial markets at the university’s Woodrow Wilson School. Between February and June of 2013, he was a senior fellow at the Urban Institute, where he worked on the launching of the Housing Finance Policy Center.

Golding joined Housing and Urban Development in 2013, serving as senior advisor in the Office of Policy and Development of Research. In this post, he helped the Obama Administration formulate policy on housing finance reform and craft expansion of funding for the Housing Trust Fund. He also participated with the Department of Justice on consumer relief efforts related to mortgage settlements with major lending firms.

Golding’s ascension to the new post at FHA found him with limited authority to manage the agency, the second time that year that HUD restricted the authority of a newly appointed principal deputy assistant secretary. A month earlier, Lourdes Castro Ramirez had been given the same title in her new post at the Office of Public and Indian Housing after her nomination stalled in the U.S. Senate in November 2014.

Although, unlike a commissioner, the title doesn’t require U.S. Senate confirmation, Republican lawmakers, led by Sen. Charles Grassley (R-Iowa), criticized the Obama Administration for circumventing the Senate in appointing Golding to the FHA post. HUD officials denied there was any such intent. Industry trade groups, however, largely supported the choice, including the National Association of Home Builders, the Mortgage Bankers Association, and the National Association of Realtors.

Golding has two grown sons, one living in Washington, D.C. and the other in Buenos Aries.

-Danny Biederman

To Learn More:

Facing the Housing Challenge Head–On: Exclusive Interview with FHA Chief Edward Golding

(by Rachel Williams, MReport)

Official Biography

Galante, Carol

Former Acting Commissioner

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.

Born in April 1954, Galante earned her B.A. at Ohio Wesleyan University in 1976, and a Master’s in City Planning from the University of California at Berkeley in 1978. Early in her career, Galante worked in city planning and community economic development for the cities of Philadelphia, Pennsylvania; Richmond, California; and Santa Barbara, California.

She left government for the nonprofit sector in 1982, serving as executive director of Eden Housing, Inc., in Hayward, California, until 1987. In that year, Galante began a 22-year association with BRIDGE Housing Corporation, in San Francisco, the largest nonprofit affordable housing developer in California, as vice president, stepping up to head the company as president and chief executive officer in 1996 when founding president Don Terner died in a plane crash.

Galante ran BRIDGE until March 2009, when President Obama appointed her as the Deputy Assistant Secretary for Multifamily Housing programs, where she oversaw the largest ever expansion of the Multifamily portfolio. Galante moved up to acting FHA commissioner in April 2011.

In addition to her work in real estate development, ownership and management, Galante has held volunteer leadership positions including director of the Housing Partnership Network, California Housing Consortium, Center for Creative Land Recycling, Center for Housing Policy, and Urban Land Institute. Galante is a licensed realtor in California.

A Democrat, since 2004 Galante has made political donations totaling $5,100, all but $500 of it to Democratic candidates and causes, including $1,000 to John Kerry’s presidential 2004 campaign; $250 to Barack Obama’s 2004 Illinois Senate campaign; and $1,850 to Obama’s 2008 presidential campaign. Her sole Republican contribution was a 2005 donation of $500 to the American Leadership Council, a “leadership PAC” that gave more than $100,000 to Republican candidates during the 2006 election cycle.