FHA-Insured Home Loans: An Overview

Katie Jones
Analyst in Housing Policy

The 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 program.

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 more 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, including changes related to the fees that it charges and its mortgage requirements, in an attempt 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 requirements.


Date of Report: April 18, 2013
Number of Pages: 14
Order Number: RS20530
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Trends in Discretionary Spending

D. Andrew Austin
Analyst in Economic Policy

Discretionary spending is provided and controlled through appropriations acts, which fund many of the activities commonly associated with such federal government functions as running executive branch agencies, congressional offices and agencies, and international operations of the government. Essentially all spending on federal wages and salaries is discretionary. Spending can be measured by budget authority (BA; what agencies can legally obligate the government to pay) or outlays (disbursements from the U.S. Treasury). This report mostly discusses trends in outlays.

Federal spending in fiscal year (FY) 2012 was just under a quarter (23%) of the U.S. economy, as measured as a share of gross domestic product (GDP). Federal spending since 1962 has averaged about a fifth of GDP. (Years denote federal fiscal years unless otherwise noted.) Discretionary spending accounted for 34% of total outlays in 2012 ($3,538 billion), well below mandatory spending’s share (60% of outlays in 2012). Weak economic conditions in recent years as well as long-term demographic trends have increased spending on mandatory income support and retirement programs, while policy makers have taken steps to constrain the growth of discretionary spending. Net interest costs were 6.3% of federal outlays in 2012, but are projected to rise sharply as interest rates return to historic levels.

Discretionary spending’s share of total federal spending has fallen over time largely due to rapid growth of entitlement outlays. In 1962, discretionary spending accounted for 47% of total outlays and was the largest component of federal spending until the mid-1970s. Since then, discretionary spending as a share of federal outlays and as a share of GDP has fallen. Under current law projections, discretionary spending’s share of GDP will fall to 5.5% in FY2023. Discretionary spending can be split into various categories to reflect broad national priorities or how federal spending decisions are made. In 1962, discretionary spending was 12.3% of GDP, with defense spending making up 9.0% of GDP. In 2012, discretionary spending was 8.3% of GDP, with defense spending (including war) totaling 4.3% of GDP. Defense spending can be divided between base budget and war expenditures, both of which grew sharply over the last decade. On average, defense outlays grew 6.8% per year in real terms from 2000 to 2010, while real nondefense discretionary outlays grew 5.6% per year. Discretionary spending has also been divided into various security and non-security categories. Non-defense security spending, which rose sharply after 2001 and Hurricane Katrina in 2005, was 1.1% of GDP in 2012, about twice its pre- 2001 level. Non-defense non-security outlays, which ranged between 3% and 3.5% of GDP since the mid-1980s, were 2.9% of GDP in 2012. Security spending, which includes almost all defense spending, was 5.3% of GDP in 2012.

The Budget Control Act of 2011 (BCA; P.L. 112-25) reintroduced statutory limits on discretionary spending by imposing a series of caps on discretionary BA from FY2012 through FY2021. The American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240) modified those limits for FY2013 and FY2014. The FY2013 full-year funding bill (H.R. 933) enacted March 26, 2013, conformed to those limits. Many believe that previous discretionary spending limits helped achieve federal surpluses in the late 1990s.

The direction of fiscal policy has been the focus of contention among macroeconomists. Some contend that more spending would help reduce high unemployment levels, while others call for imposing greater budgetary stringency. Over the long term, future growth in entitlement program outlays may put severe pressure on discretionary spending unless policy changes are enacted or federal revenues are increased.


Date of Report: April 15, 2013
Number of Pages: 34
Order Number: RL34424
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Small Business Administration: A Primer on Programs

Robert Jay Dilger
Senior Specialist in American National Government

Sean Lowry
Analyst in Public Finance

The Small Business Administration (SBA) administers several types of programs to support small businesses, including loan guaranty and venture capital programs to enhance small business access to capital; contracting programs to increase small business opportunities in federal contracting; direct loan programs for businesses, homeowners, and renters to assist their recovery from natural disasters; and small business management and technical assistance training programs to assist business formation and expansion.

Congressional interest in the SBA’s loan, venture capital, training, and contracting programs has increased in recent years, primarily because small businesses are viewed as a means to stimulate economic activity, create jobs, and assist in the national economic recovery. Many Members of Congress also regularly receive constituent inquiries about the SBA’s programs.

This report provides an overview of these programs, including programmatic changes resulting from enactment of P.L. 111-5, the American Recovery and Reinvestment Act of 2009, P.L. 111- 240, the Small Business Jobs Act of 2010, and P.L. 112-239, the National Defense Authorization Act for Fiscal Year 2013. It also provides an overview of the SBA’s budget, including changes in funding resulting from enactment of P.L. 113-2, the Disaster Relief Appropriations Act, 2013, and P.L. 113-6, the Consolidated and Further Continuing Appropriations Act, 2013. This report references other CRS reports that examine the SBA’s programs in greater detail.


Date of Report: April 16, 2013
Number of Pages: 30
Order Number: RL33243
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Changes to the Residential Mortgage Market: Legislation, Demographics, and Other Drivers

N. Eric Weiss
Specialist in Financial Economics

This report provides an overview of the changing residential mortgage market, focusing on trends in housing prices, homeownership, mortgage characteristics, and financing. It also examines legislation and regulations designed to promote the efficient functioning of the mortgage market. 

Congressional Concern About Mortgages 

Congressional interest in residential mortgage markets has increased following the collapse of the housing bubble, government financial support to the mortgage market, and housing’s perceived importance to the broader economic recovery. Since 2008, the residential mortgage market has experienced some of the highest default and foreclosure rates since the Great Depression. The future of Fannie Mae and Freddie Mac, two congressionally chartered government-sponsored enterprises (GSEs) that have long been central pillars of the mortgage market, is also the subject of congressional debate. Both GSEs are currently in conservatorship and have received financial support from the U.S. Department of the Treasury. There is also concern over the financial conditions of the Federal Housing Administration’s (FHA’s) mortgage guarantee program. 

How Mortgages Are Funded 

Today and in the foreseeable future, home mortgages are indirectly financed by financial institutions, such as pension funds, college endowments, central banks, and sovereign wealth funds. A household seeking a mortgage typically applies directly to an organization (or part of a larger organization) that specializes in the mortgage origination process. This mortgage originator uses credit scores and computer systems to underwrite (evaluate) the mortgage application. The originator may “hold the mortgage in portfolio” as an investment or sell it within days of being issued. In the latter case, the mortgage might be sold again, and typically ends up pooled with other mortgages in a mortgage-backed security (MBS) that is guaranteed by Fannie Mae, Freddie Mac, or by the federal government through Ginnie Mae, which is part of the Department of Housing and Urban Development (HUD). The MBS frequently is sold to an institutional investor. In many cases servicing is contracted out and the homeowner does not know who actually owns the mortgage. 

Possible Changes to the Residential Mortgage Market 

Change is expected on a variety of fronts.

• More than 45 bills were introduced in the 112th Congress to enhance the accountability of Fannie Mae and Freddie Mac. Some of the bills sought to reduce the cost to the government, while others sought to change the enterprises’ charters if or when they leave conservatorship. 
• Previously enacted legislation requires regulations for full implementation. For example, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act; P.L. 111-203) requires new regulations affecting risk retention and mandating that mortgages be “suitable” for borrowers. 
• The maximum size of mortgages that can be purchased by Fannie Mae or Freddie Mac, or included in MBSs guaranteed by Ginnie Mae (part of the FHA) with the full faith and credit of the U.S. government, has been changed by legislation six times since 2008.
• Demographics, the recent recession, and the experience of the housing bubble each are likely to result in changes to household formation and homeownership preferences regardless of any legislation enacted into law.

Date of Report: April 16, 2013
Number of Pages: 32
Order Number: R42571
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The STOCK Act, Insider Trading, and Public Financial Reporting by Federal Officials

Jack Maskell
Legislative Attorney

The STOCK Act (Stop Trading on Congressional Knowledge Act of 2012) was signed into law on April 4, 2012. It affirms and makes explicit the fact that there is no exemption from the “insider trading” laws and regulations for Members of Congress, congressional employees, or any federal officials. The law also expressly affirms that all federal officials have a “duty” of trust and confidentiality with respect to nonpublic, material information which they may receive in the course of their official duties, and a duty not to use such information to make a private profit.

The STOCK Act, as part of the law’s regulation of securities transactions by public officials, now requires expedited, periodic public disclosure of covered “financial transactions” by all officials in the executive and legislative branches of the federal government who are covered by the public reporting provisions of the Ethics in Government Act of 1978, as amended. The act thus works to require not only annual public reporting of such transactions (which reporting has been required since 1978), but also now requires public reporting within 30 days of receipt of a notice of a covered financial transaction (but in no event more than 45 days after such transaction). These periodic reports are filed with reference to any financial transactions of $1,000 or more in securities, but are not required for transactions in mutual funds or income-producing real property.

The act as originally adopted had required all public financial disclosure statements filed under the Ethics in Government Act in the legislative and executive branches to eventually be made in electronic form, and to be posted on the Internet where they may be publicly searched, sorted, and, if a log-in protocol is followed, downloaded from official government websites. Because of safety concerns, privacy threats, and the possibility of malicious use of such data, federal executives and employees complained about the Internet posting of their detailed financial information, and filed suit to stop the requirement to post such information on the Internet. Congress responded by amending the Stock Act to delay the Internet posting requirements of the public personal financial disclosure reports until a study could be made on the potential impact of having such personal financial information available on the Internet. Legislation (S. 716, 113th Congress) was signed into law on April 15, 2013 (P.L. 113-7, 127 Stat. 438) which permanently rescinds the requirement for Internet posting for most covered employees in the legislative and executive branches of the United States Government. However, the requirement for Internet posting of the financial disclosure reports and all financial information filed by Members of Congress, the President and Vice President, candidates for Congress, and federal officials appointed by the President and confirmed by the Senate in positions on the Executive Schedule at Levels I (cabinet level) and II, remains in effect, and such information and reports are still required to be posted on the Internet.


Date of Report: April 18, 2013
Number of Pages: 11
Order Number: R42495
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