The Federal Housing Administration ( FHA ) is a United States government agency created in part by the National Housing Act of 1934. The FHA sets standards for construction and guarantee and ensures loans made by banks and other private lenders to build homes. The purpose of this organization is to improve housing standards and conditions, provide adequate home financing system through mortgage loan insurance, and to stabilize the mortgage market. The Commander of the FHA is Dana T. Wade.
This is different from the Federal Housing Finance Agency (FHFA), which oversees government-sponsored companies.
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Histori
During the Great Depression many banks failed, causing a drastic reduction in lending and home ownership. At that time, most short-term home mortgages (three to five years), without amortization, and balloon instruments with a loan-to-value (LTV) ratio were below sixty percent. The banking crisis of the 1930s forced all creditors to take mortgages because; refinancing is not available, and many borrowers, who are now unemployed, can not make mortgage payments. As a result, many houses are closed, causing the housing market to decline. Banks collect loan collaterals (foreclosed homes) but low property values ​​lead to a lack of relative assets.
In 1934, the federal banking system was restructured. The National Housing Act of 1934 created the Federal Housing Administration. The goal is to set the interest rate and the insured mortgage terms. This new loan practice increases the number of people who can afford the down payment on home and monthly debt repayment on the mortgage, thereby also increasing the market size for single-family homes.
The FHA appraisal scores are calculated on the basis of eight criteria and direct the agency to lend more for the higher rated project, to the maximum extent. The two most important are "Relative Economic Stability", which is 40% of the appraisal value, and "protection from adverse effects", which consists of the other 20%.
In 1935, Colonial Village in Arlington, Virginia, was the first large-scale rental housing project established in the United States to be insured by the Federal Housing Administration. During World War II, FHA financed a number of housing housing projects including the Kensington Gardens Apartments Complex in Buffalo, New York.
In 1965 the Federal Housing Administration became part of the Department of Housing and Urban Development (HUD).
Following the subprime mortgage crisis, FHA, along with Fannie Mae and Freddie Mac, became the source of mortgage financing in the United States. The share of home purchases financed with FHA mortgages went from 2 percent to more than a third of mortgages in the United States, such as conventional dry mortgage lending in the credit crunch. Without the subprime market, many of the most risky borrowers end up borrowing from the Federal Housing Administration, and FHA could suffer huge losses. Joshua Zumbrun and Maurna Desmond of Forbes have written that the final government losses from FHA could reach $ 100 billion.
The problematic loans now weigh on the institutional reserve fund, which in early 2012 has fallen below the congressional mandate of 2%, in contrast to more than 6% two years earlier. In November 2012, FHA is basically bankrupt.
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Mortgage insurance
Since 1934, FHA and HUD have insured more than 34 million home mortgages and 47,205 multifamily project mortgages. Currently, FHA has 4.8 million single family insured policies and 13,000 multifamily projects are insured in its portfolio.
Mortgage insurance protects lenders from credit defaults. If the property buyer borrows more than 80% of the value of the property, the lender will likely require that the borrower buy personal mortgage insurance to cover the lender's risk. If the lender is FHA approved and the mortgage is within FHA limits, FHA provides mortgage insurance that may be more affordable, especially for high-risk borrowers
The lender can usually obtain FHA mortgage insurance for 96.5% of the assessed value of the house or building. FHA loans are insured through a combination of advance mortgage insurance premium (UFMIP) and annual mortgage insurance premium (MMI). UFMIP is an amount at once ranging from 1 - 2.25% of the loan amount (depending on LTV and duration), paid by the borrower either in cash at closing or financed through the loan. MMI, although annual, is included in monthly mortgage payments and ranges from 0 - 1.35% of the loan value (again, depending on LTV and duration).
If a borrower has a bad credit history to moderate, MMI may be much cheaper with FHA-guaranteed loans than with conventional loans regardless of LTV - sometimes as little as one nine much depends on the borrower's credit score, LTV, loan size, and approval status. The rate of conventional mortgage insurance increases when the credit value decreases, while the mortgage insurance rate of FHA does not vary with credit score. Conventional mortgage premiums jump dramatically if the borrower's credit score is lower than 620. Due to the sharp increase in risk, most mortgage providers will not write policy if the borrower's credit score is less than 575. When the insurer writes policy for the borrower with a lower credit score, the annual premium may be as high as 5% of the loan amount.
FHA advances
The borrower's down payment can come from a number of sources. The 3.5% requirement can be met by borrowers using their own money or receiving gifts from family members, their employers, unions, or government agencies. Since 1998, nonprofit organizations have provided advance rewards to borrowers who buy homes where the seller agrees to replace the nonprofit organization and pay additional processing fees. In May 2006, the IRS determined that this was not a "charitable activity" and had moved to withdraw the nonprofit status of the organizations providing advance assistance in this way. Since then, FHA suspended the payment assistance program through a third party non-profit organization. There is a bill currently in Congress that hopes to bring back the payment assistance program through a non-profit organization.
Cancel FHA mortgage insurance
FHA insurance payments cover two parts: advance mortgage insurance premium (UFMIP) and annual premium sent on monthly basis - joint mortgage insurance (MMI). UFMIP is a compulsory payment, which can be made in cash at closing or financed into a loan, and is thus paid out over the life of the loan. This adds a certain amount to your monthly payment, but this is not a PMI, nor a MMI. When a homeowner buys a home using an FHA loan, they will pay a monthly mortgage until the loan is paid up to 78% of the assessed value to a minimum of five years. MMI premiums are a top priority for all FHA Purchase Money Mortgages, Qualified Refinances, and Streamline Refinances.
When we talk about the cancellation of FHA insurance, we are only talking about the MMI section. Unlike other forms of conventional financed mortgage insurance, UFMIP on FHA loans is projected over a three-year period, which means homeowners must finance or sell during the first three years of the loan, they are entitled to a partial refund of UFMIP paid on loan. If you have financed UFMIP into the loan, you can not undo this section. Insurance premiums on 30-year FHA loans beginning before 6/3/2013 must be paid for at least 5 years. MMI premiums are automatically terminated after unpaid principal balance, excluding upfront premiums, reaching 78% of the initial price or low rated value. After 6/3/2013 for the loan period of 30 and 15 years, the monthly insurance premium must be paid for 11 years if the initial loan for the value is 90% or less. For loans up to a value of more than 90%, the insurance premium should now be paid for the entire term of the loan.
The annual insurance premium of 15 years FHA will be canceled at 78% loan to value ratio regardless of how long the premium has been paid. 78% FHA is based on the initial amortization schedule, and does not take additional payments or new assessments into account. For loans beginning after 6/3/2013, the 15-year FHA insurance premium follows the same rules for a period of 30 years (see above.) This is a big difference between PMI and FHA insurance: the discontinuation of FHA premiums is almost impossible to accelerate.
Borrowers who make additional payments to the FHA mortgage principal, can take the initiative through their lenders to terminate the insurance using the 78% rule, but not sooner than after 5 years of regular payments for 30-year loans. The termination of PMI, however, can be accelerated through additional payments or new assessments if the home has valued its value.
Legacy
The creation of a Federal Housing Administration managed to increase the size of the housing market. Home ownership increased from 40% in the 1930s to 61% and 65% in 1995. Home ownership peaked at almost 69% in 2005, near the peak of the US housing bubble. In 1938 just four years after the start of the Federal Housing Association, a home could be bought with an advance of only ten percent of the purchase price. The remaining ninety percent is financed by 25 years, self-amortized mortgage loans, FHA. After World War II, FHA helped finance homes for returning veterans and family soldiers. This has helped with the purchase of both single families and multipurpose families. In the 1950s, 1960s, and 1970s, the FHA helped spark the production of millions of privately owned apartment units for the elderly, disabled, and low-income Americans. When rising inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, the FHA's emergency financing made the money-strapped property afloat. In the 1980s, when the economy did not support an increase in homeowners, FHA helped to lower prices, thus allowing potential homeowners to finance when private mortgage insurance is pulled out of oil-producing countries.
The greatest effect of the Federal Housing Administration can be seen in the minority population and in the cities. Nearly half of the FHA's metropolitan area businesses are located in central cities, a much higher percentage than conventional loans. FHA also lends a higher percentage of African Americans and Hispanic Americans, as well as younger borrowers, credit-restricted borrowers, contributing to increased home ownership among these groups.
When capital markets in the United States mature for decades, the impact of FHA declines. In 2006, FHA accounted for less than 3% of all loans from the United States. These few in Congress questioned the role of government in the mortgage insurance business, with a vocal minority calling for an FHA final. The subsequent setbacks on the credit market, however, have slightly silenced critics of the agency. Today, the FHA supports more than 40 percent of all new mortgages.
Redlining
In the 1930s, the Federal Housing Authority set mortgage guarantees standards that significantly discriminated against minority environments. Between 1945 and 1959, African Americans received only 2 percent of all home-borne federal government loans. Due to the importance of subsidized mortgage insurance in the growing housing market, the value of homes in minority neighborhoods in cities is dropping dramatically. Also, the level of approval for minorities is equally low. After 1935, the FHA set guidelines to direct private mortgage investors away from minority areas. This practice, known as redlining, was illegal under the Fair Housing Act in 1968. It has long-term effects on black and minority communities, due to the lack of ability to pass on wealth to the next generation. Minorities are still harmed when it comes to property ownership due to previous FHA regulations during the New Deal era.
Operation
The Federal Housing Administration is one of several fully self-funded government agencies.
See also
- Ginnie Mae
- California Housing Finance Agency
References
Further reading
External links
- Official website
- National Housing Institute
Source of the article : Wikipedia
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