FHA-Insured Home Loans: An Overview (CRS Report for Congress)
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| Release Date |
Revised Jan. 21, 2022 |
| Report Number |
RS20530 |
| Report Type |
Report |
| Authors |
Bruce E. Foote, Domestic Social Policy Division; and Meredith Peterson, Knowledge Services Group |
| Source Agency |
Congressional Research Service |
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Summary:
The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban
Development (HUD), was created by the National Housing Act of 1934. FHA insures private
lenders against the possibility of borrowers defaulting on mortgages that meet certain criteria,
thereby expanding the availability of mortgage credit beyond what may be available otherwise. If
the borrower defaults on the mortgage, FHA is to repay the lender the remaining amount owed.
A household that obtains an FHA-insured mortgage must meet FHA’s eligibility and underwriting
standards, including showing that it has sufficient income to repay a mortgage. FHA requires a
minimum down payment of 3.5% from most borrowers, which is lower than the down payment
required for many other types of mortgages. FHA-insured mortgages cannot exceed a statutory
maximum mortgage amount, which varies by area and is based on area median house prices but
cannot exceed a specified ceiling in high-cost areas. (The ceiling is set at $726,525 in high-cost
areas in calendar year 2019.) Borrowers are charged fees, called mortgage insurance premiums, in
exchange for the insurance.
In FY2018, FHA insured over 1 million new mortgages (including both home purchase and
refinance mortgages) with a combined principal balance of $209 billion.
FHA’s share of the mortgage market tends to vary with economic conditions and other factors. In
the aftermath of the housing market turmoil that began around 2007 and a related contraction of
mortgage lending, FHA insured a larger share of mortgages than it had in the preceding years. Its
overall share of the mortgage market increased from about 3% in calendar year 2005 to a peak of
21% in 2009. Since that time, FHA’s share of the mortgage market has decreased somewhat,
though it remains higher than it was in the early 2000s. In calendar year 2017, FHA’s overall
share of the mortgage market was about 17%.
FHA-insured mortgages, like all mortgages, experienced increased default rates during the
housing downturn that began around 2007, leading to concerns about the stability of the FHA
insurance fund for single-family mortgages, the Mutual Mortgage Insurance Fund (MMI Fund).
In response to these concerns, FHA adopted a number of policy changes in an attempt to limit risk
to the MMI Fund. These changes have included raising the fees that it charges and making
changes to certain eligibility criteria for FHA-insured loans.
