Federal Housing Administration (FHA) was created by the National 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. If the borrower defaults on the
mortgage, FHA will repay the lender the remaining amount owed. While FHA
insures a range of mortgage types, including multifamily properties and
hospital facilities, this report focuses on FHA’s single-family insurance
FHA requires a minimum downpayment of 3.5% from most borrowers, which is lower
than the downpayment required for most other types of mortgages.
FHA-insured mortgages cannot exceed a statutory maximum mortgage amount,
which varies by area but cannot exceed a specified ceiling in high-cost
areas. (The ceiling is currently set at $729,750, but is scheduled to fall to $625,500
after December 31, 2013.) Borrowers are charged fees, called mortgage insurance premiums,
in exchange for the insurance.
FHA’s share of the mortgage market tends to vary with economic conditions and
other factors. In recent years, due to housing market turmoil and a
contraction of private lending, FHA has been insuring a larger number of
mortgages than it had in previous years. In FY2012, FHA insured about 1.2
million new loans with a combined principal balance of over $200 billion.
FHA-insured mortgages, like all mortgages, have experienced increased
default rates in recent years, leading to 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 policy changes related to the fees that it charges and its
mortgage requirements designed to limit risk to the MMIF. These policy
changes have included increasing mortgage insurance premiums, instituting
a minimum credit score requirement, and raising downpayment requirements
for borrowers with lower credit scores.
This report briefly discusses the basic features of the FHA program to insure
loans on singlefamily homes and describes some recent changes to program
Date of Report: January 29, 2013
Number of Pages: 14 Order Number: RS20530 Price: $29.95
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