FHA Bonds

FHA Bonds (Federal Housing Authority)

The Federal Housing Administration is a US government agency that was established in 1934 in response to the Great Depression. Their main objectives were to improve residential standards and conditions for the American Public, provide sufficient financing through a fair and adequate mortgage loan system and to eventually level the mortgage market.

During the great depression a lot of families had gone through tough times and eventually could not pay off their home loans resulting in many defaults and foreclosures. This had left many Americans homeless and in debt. In 1934 The National Housing Act was passed to help fight this problem and the FHA was created

The main goal of the National Housing Act was to firstly regulate interest rates. This called for a restructuring of the entire banking industry which up till then only provided short-term loans. Terms of mortgages were also altered to allow more of the public to be eligible for loans. This saw an increase of home buyers who could now afford to buy homes which triggered a growth in the economy. This also increased the size of the market for family homes which in turned increased the quality of homes built and living standards.

FHA Today

The FHA in 1965 then merged and evolved to the Department of Housing and Urban Development. They currently insure almost five million single family mortgages. The FHA is fully self-funded, which makes it the only government agency that is. Their primary goal now is to stimulate growth in the economy by encouraging home and community development.

FHA Bonds

FHA Bonds are part of the FHA initiative to encourage home buyers and spur economic growth. They are given to lending institutions in order to encourage them to give mortgages out to borrowers who they would normally not target. This includes the population who has never owned a house, population living in “targeted areas”, families/people that meet credit requirements as those calculated by the Veterans Administration or Fannie Mae or those within the house buying income guideline of their area.

FHA Bonds are insured to protect the lender from defaults. There are also other conditions that borrowers must abide by like ensuring their property is owner occupied, and certain condos have to be pre-approved by the FHA or the VA.

Impact of FHA Bonds

Since the inception of FHA in 1934 the percentage of home owners in America has increased from 40% to 70%. In fact they had already made it possible for homeowners to buy a house by applying for long term loans and making monthly payments with regulated interest rates.

Future of FHA

New numbers coming from preliminary budgets see FHA projecting extra income due to the current mortgage and lending crisis. The crisis has triggered the collapse of the subprime market and a very high demand for new loans which are to be funded by the FHA. However the FHA now only accounts for 3% of the mortgages given out and congress has recently called to end the initiative. FHA’s future is now yet to be seen however they’re historical impact on the banking structure and the home loan market will forever remain strong.

http://en.wikipedia.org/wiki/Federal_Housing_Administration
http://www.mshomecorp.com
http://www.fha.com/