The early years
Since its inception in 1934, the Federal Housing Administration (FHA) has been meeting the needs of home-buying communities by providing mortgage insurance on loans made by FHA-approved lenders throughout the United States and its territories. Unlike conventional mortgage loans that adhere to strict underwriting guidelines, FHA mortgage loans require very little cash investment and there is more flexibility in calculating household incomes and payment ratios.
As of September 2006, the FHA was the largest insurer of mortgages in the world, insuring over 34 million properties since its creation by congress seventy five years ago. Although the FHA provides mortgage insurance for single family homes, multifamily buildings, manufactured homes, hospitals and several other property types, the focus of this “Prime Mortgages” site will be the residential one-to-four family homes and mixed-use property types.
Three popular loans programs
Specifically FHA mortgage programs that will be discussed here are: The 203(b) which provides mortgage insurance for the purchase and refinance of one-to-four family homes, the 203(k) which provides mortgage insurance for one-to-four family homes and mixed-use properties in need of repair, and the HECM which provides mortgage insurance for reverse mortgages on one-to-four family homes owned and occupied by seniors who have attained the age of 62 years and over.
For many years I have held the belief that the FHA mortgage insurance program was one of the most effective and indispensable for home purchasers, realtors, mortgage brokers and mortgage lenders, as long as the program was implemented properly and in accordance with guidelines set forth by HUD/FHA. I held this believe since making my first home sale in 1979 as a newly hired associate of a Queens, New York real estate agency.
The program is solid. Since that first home sale, which was financed with FHA-insured funds, I have continued to work with the program and saw first-hand the difference it has made in the lives of many home buyers. I also had a first-hand view of the changes made to the program over the years and how it has withstood the test of time. The FHA-insured mortgage has survived a couple of stock market crashes, the emergence of PMI, which was supposed to replace it, and the flawed “Sub-Prime” mortgage vehicle which could not outlast it, and the program is still going strong.
The FHA mortgage program continues to meet the needs of home-buying and refinancing families, while demonstrating – with a timely introduction of the unique HECM reverse mortgage for seniors – why so many home buyers continue to trust and rely on it for their mortgage financing needs. Meeting housing needs in times of crises and uncertainty is nothing new for the FHA though, because when it was created over seven decades ago, the housing industry was “flat on its back” according to language posted on HUD’s web pagepage.
Following are some of the conditions which existed during FHA’s early years:
Two million construction workers had lost their jobs; Mortgage terms were difficult to meet for would-be home buyers; LTV requirements were 50% on five year “Interest Only Balloon” mortgages which were basically the only loans available at that time; Only four out of ten households owned homes and everybody else had to rent. America was surely a nation of renters, but due to a practical and common-sense approach to mortgage financing, the FHA was adequate to the task of meeting the needs of the nation’s home buying communities and it is still going as strong as ever.