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Thursday, January 27, 2011

FHA-Insured Home Loans: An Overview

Bruce E. Foote
Analyst in Housing Policy

Katie Jones
Analyst in Housing Policy

The Federal Housing Administration (FHA) was created by the Housing Act of 1934 in order to broaden homeownership, protect lending institutions, and stimulate the building industry. FHA does not make mortgage loans. Rather, it insures mortgage loans made by private lenders that meet certain underwriting and other criteria, thereby expanding the availability of mortgage credit beyond what may be available otherwise. While FHA insures a range of mortgage types, including multifamily properties and hospital facilities, this report focuses on FHA’s single-family insurance program.

FHA’s share of the housing market has fluctuated through the years, in part due to economic conditions. In recent years, due to housing market turmoil and a contraction of private lending, FHA’s market share has risen considerably. In FY2010, FHA-insured loans comprised about 19% of the home purchase market. FHA-insured mortgages, like all mortgages, have experienced increased default rates in recent years, leading to some concerns about the stability of the FHA insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMIF). In response to these concerns, FHA has recently adopted a number of new policies designed to limit the risk to the MMIF.

This report discusses the basic features of the FHA program to insure loans on single-family homes and recent changes to the program.

Date of Report: January 18, 2011
Number of Pages: 11
Order Number: RS20530
Price: $29.95

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