Affordable Housing Initiative

HUD/FHA 

The Federal Housing Administration (FHA)

In 1934, in response to the housing crisis of The Great Depression, Congress created the Federal Housing Administration (FHA) to insure loans made by FHA-approved lenders  on single family and multi-family homes of 1-4 units including manufactured homes.

The Department of Housing and Urban Development (HUD)

The Department of Housing and Urban Development’s (HUD’s) Office of Housing was created by the U.S. Housing Act of 1937.  And in 1965, the FHA became a part of the Department of Housing and Urban Development’s (HUD’s) Office of Housing.

What is a HUD Home?

A HUD home is a 1-to-4 unit residential property acquired by HUD as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

HUD Home Store

HUD Home Store is the listing site for HUD real estate owned (REO) single-family properties.  This site provides the public, brokers, state and local governments and nonprofit organizations a centralized location to search the inventory of HUD properties for sale.  Registered real estate brokers can place bids on behalf of their clients to purchase a HUD property.

Inflation

“Inflation” is a consequence of excess fiat currency circulating within an economy. Simply, inflation is caused by too much money chasing too few goods.  Back in 1979, 19 percent inflation seriously impacted home-buying and home mortgage loans.  Everything started to cost more, and the economy slowed.  The government responded with more stimulus.  (When will the politicians ever learn?  Keynesian philosophy is all wrong!)

Government Acts

The Depository Institutions’ Deregulation and Monetary Control Act of 1980 changed rules governing thrift institutions and expanded the availability of alternative mortgages.

A decade later, the Low-Income Housing Preservation and Residential Homeownership Act of 1990 fortified Federal commitment to preservation of -assisted low-income, multifamily housing.

The Federal Housing Enterprises’ Financial Safety and Soundness Act of 1992 created the HUD Office of Federal Housing Enterprise Oversight to provide public oversight of FNMA and Federal Home Loan Mortgage Corporation (Freddie Mac).

Click here to go to HUD.gov to learn more about HUD topics and programs.

What is FHA Mortgage Insurance?

FHA mortgage insurance protects lenders (banks) against losses as the result of homeowners defaulting on their mortgage loans. FHA mortgage insurance benefits the bank-lenders (BoA, JPMChase, Wells Fargo, Citi, etc.) by reducing their exposure to risk because FHA will pay a claim to the lender in the event the homeowner defaults.

How is FHA funded?

Unlike all other government agencies, FHA is great because FHA is the only self-funded government agency.  How does FHA get its money?  FHA-insured borrowers pay “mortgage insurance” (MI), which is pooled and used to operate the entire program.

Why does FHA Mortgage Insurance exist?

FHA mortgage insurance exists so that banks will make riskier loans to people who do not qualify for conventional 80/20 LTV financing.  Investors consider a borrower’s 20+% down payment as significant motivation for that borrower to continue paying his obligation so as to avoid foreclosure and loss of his money.

Risks and Consequences

When government agencies give 90% or 96.5% or even 100% mortgages, borrowers bear little, if any, risk.  However, since the government wants to extend the “American Dream” to everybody, FHA-insured loans are substantially riskier than conventional loans. And since borrowers are required to put up very little cash toward the purchase, their “vested” interest is minimal and they are much more likely to default on the loan.  So, while the primary purpose of FHA-backed mortgages is to enable low- to middle-income people buy a home, it’s a fool’s gamble that might yet bankrupt the nation.

Why wasn’t there enough mortgage insurance to cure the recent housing crisis?

Only about half of all American mortgage loans are insured.

The modern sub-prime loan debacle and bursting of the real estate bubble overwhelmed the system of backstop provisions.  The sudden cascade of defaults reverberated all the way up the financial system.  Huge sums of wealth evaporated.  The entire banking system teetered on bankruptcy.  Elite Wall Street firms were deemed “too big to fail” – and the “the bank bailout” occurred.  The banks were made whole, but the younger generations and future taxpayers will pay the bill.

In the meantime, however, investors have been busy tracking down foreclosed homes to fix and flip, or rent for a cash profit.  And we’ve been doing that too, to help provide revitalized affordable housing for ow-to middle-income families, and as a fundraiser to support Children’s H.E.L.P.’s other charitable activities.