The Federal Housing Administration FHA

Before 1934 a typical American mortgage ran five to ten years, required half the price down, and ended in a balloon payment that borrowers had to refinance or lose the house. When the Depression froze credit, millions did lose them. The National Housing Act of June 27, 1934, created the Federal Housing Administration to insure lenders against default on long-term, fully amortizing loans with small down payments. The insurance made banks willing to lend on those terms, and the 30-year fixed-rate mortgage, now the standard American home loan, grew out of the FHA's underwriting rules.

The FHA does not lend money. It insures loans made by private lenders that meet its standards, charging borrowers a premium that funds the Mutual Mortgage Insurance Fund. Because it accepts down payments as low as 3.5 percent and lower credit scores than conventional lenders, it serves first-time buyers, lower-income families, and borrowers of color disproportionately. It insures about 8 million single-family mortgages worth more than 1.3 trillion dollars, along with loans on apartment buildings, hospitals, and nursing homes, and the reverse mortgages that let older homeowners draw on their equity.

The agency became part of HUD when the department was created in 1965, and its Commissioner is also HUD's Assistant Secretary for Housing. Its market share swings with the economy: it shrinks when private credit is easy and expands when lenders pull back, which is exactly what it did after the 2008 crash, when FHA loans briefly made up a third of home purchases. That countercyclical role nearly exhausted its insurance fund in 2012, requiring a draw from the Treasury for the first time in its history.

The FHA's history carries a heavy legacy. For its first three decades its underwriting manuals steered insured loans away from Black neighborhoods and toward segregated white suburbs, a practice historians identify as a major cause of the racial wealth gap. The Fair Housing Act ended explicit discrimination in 1968. Current debates focus on premium levels, the agency's exposure to risky borrowers, and whether it competes unfairly with private mortgage insurers or fills a gap they would leave open.