In 1934, faced with a failed banking system and dramatic decreases in home ownership due to the economic depression, the U.S. government created the Federal Housing Administration (FHA) as part of the National Housing Act. The new government agency insured the loans made by mortgage servicers; it was also charged with the dual mission to improve housing conditions and provide stability for the mortgage market.
Prior to the creation of the FHA, most home loans featured three- to five-year repayment schedules culminating in a balloon payment, with loan-to-value ratios usually below 60 percent. With the restructuring of the federal banking system, new conditions for lending allowed for an increase in ownership of single-family homes.
In 1965, the U.S. Department of Housing and Urban Development became the umbrella organization for the FHA. In 2006, the FHA insured less than 3 percent of nationally originated loans. In 2012, it backs over 40 percent of all newly generated mortgages in the United States.
About Avi Naider: A software innovator and entrepreneur, Mr. Naider is CEO of ACES Risk Management Corp (ARMCO), found on the web at http://www.armco.us. He is a graduate of Princeton University’s Woodrow Wilson School of Public Policy and International Affairs.