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Thursday, April 21, 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 20%  of single-family purchase and refinance mortgage originations. 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: April 14, 2011
Number of Pages: 11
Order Number: RS20530
Price: $29.95

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