Federal Housing Administration

Identification Federal government agency providing insurance for home mortgages

Date Established on June 28, 1934

By providing government-backed insurance for loans to purchase homes, the Federal Housing Administration (FHA) expanded the availability of loans for Americans without requiring large down payments.

The Great Depression produced a dramatic decline in home ownership. Foreclosures of family homes became widespread, and estimates indicate that one-third of unemployed persons had earlier worked in the housing industry. One of the major causes for the decline in the housing industry was that the failure of thousands of banks made it extremely difficult for people to obtain mortgages. From the beginning of his presidency, Franklin D. Roosevelt was firmly determined to establish programs that would promote the building and ownership of private homes.

Roosevelt was especially interested in a program that would not require large expenditures and would not involve the government directly in financing or construction. To design such a program, he formed the President’s Emergency Commission on Housing. The chair of the commission was Frank Comerford Walker, and members included Harry Hopkins, Frances Perkins, Rexford Guy Tugwell, and Henry A. Wallace. The group drafted a housing bill, which, despite considerable opposition from some banking and construction interests, was approved by Congress in June, 1934.

The National Housing Act established the FHA, which guaranteed home mortgage loans made by banks and other lending institutions. The act reduced down payments from 30 percent to 10 percent and extended the periods of payments from twenty to thirty years—conditions that made home ownership affordable for millions of Americans with modest incomes. In addition, the act created the Federal Savings and Loan Insurance Corporation, which provided insurance for deposits in savings-and-loan associations and home-loan banks.

Under the act, when an individual applied for a home mortgage, an FHA-approved lending institution would ask the borrower if FHA insurance was desired. If the down payment was small, the lender could insist that the borrower apply for the insurance. When insurance was desired, FHA employees assessed the conditions of the proposed loan, and if these met the necessary criteria, the FHA would then insure the lending institution against a loss of principal in case the borrower defaulted. Borrowers paid an insurance premium, and in return, they received two benefits: an external appraisal and usually a lower interest rate. The FHA was one of the few government agencies that operated entirely from its self-generated income, thereby costing taxpayers nothing.

The first administrator of the FHA was James Moffett, a conservative businessman. Under his leadership, the FHA was reluctant to insure new constructions, rental houses, and houses in blighted neighborhoods. Moffett also opposed the building of pubic-housing projects, and this opposition brought him into conflict with liberals in the Congress and the administration. In 1938, amendments to the National Housing Act substantially lowered requirements for down payments and raised financing limits, thereby allowing more middle-class families to obtain FHA-insured loans. Only after passage of the 1938 amendment did the FHA begin to aggressively finance the construction of new homes.

Impact

The insurance program of the FHA helped to make home mortgages more accessible to persons of modest income, and it also helped to promote home construction and repair, thereby reducing unemployment. The FHA was more successful in financing the modernization of existing structures than in promoting the construction of new homes. Between 1934 and 1940, the FHA extended $4.07 billion in insured loans. This included more than 1.5 million loans to repair or modernize homes and 494,474 loans to build new homes.

During its first thirty years, the major function of the FHA was to serve as an insuring agency for loans from private lenders, but after the late 1960’s, its role expanded to include the administration of interest-rate subsidies and rent-supplement programs. By 2000, the FHA had provided insurance for 34 million mortgages. The FHA continued to function into the twenty-first century.

Bibliography

Fish, Gertrude. The Story of Housing. New York: Macmillan, 1979.

Garvin, Alexander. The American City: What Works, What Doesn’t. 2d ed. New York: McGraw-Hill, 2002.

Gelfand, Mark. A Nation of Cities: The Federal Government and Urban America, 1933-1965. New York: Oxford University Press, 1975.

Henderson, A. Scott. Housing and the Democratic Ideal: The Life and Thought of Charles Abrams. New York: Columbia University Press, 2000.

Jackson, Kenneth. “Race, Ethnicity, and Real Estate Appraisal: The Home Owners Loan Corporation and the Federal Housing Administration.” Journal of Urban History 6 (August, 1980): 419-452.

Wood, Edith Elmer. Slums and Blighted Areas in the United States. College Park, Md.: McGrath, 1969.