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FHA Lending Activity in the Past Decade: A National Overview

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FHA Lending Patterns Nationally and in the Third District States PDF (27 pages, 858 KB)

The Federal Housing Administration (FHA), which provides insurance for residential mortgage loans, was established by the National Housing Act of 1934 to stimulate housing demand and, in turn, demand for those who build housing. In the housing boom after World War II, FHA loans helped make mortgage credit more widely available to returning veterans. In recent decades, the FHA, which is now part of the Department of Housing and Urban Development (HUD), has disproportionately served first-time homebuyers as well as low- and moderate-income (LMI) and minority households. The FHA allows low down payments and a low minimum credit score and requires that lenders who make FHA-insured loans carry out extensive loss mitigation efforts on seriously delinquent loans to reduce the incidence of foreclosure.

The annual number of FHA loans has waxed, waned, and waxed again over the period 2000-2009 (Chart 1). As the FHA has grown in size and scope during the years of the current housing crisis, use of FHA loans has become an interesting topic for exploration. This report will compare patterns in lending in the United States for the FHA and the overall mortgage market, which will provide a basis for a better understanding of the factors underlying both the FHA’s recent history and its current role in mortgage finance.

Over the past decade, a range of factors have affected the FHA, including changes to its required minimum down payment, an increase in loan limits, and changes to its policies allowing the use of nonprofit organizations as pass-throughs for seller-financed down payment funds. Other factors such as interest rates, home prices, and subprime lending have also affected the lending environment of this time period and have influenced trends in the overall market as well as for the FHA. (See A Brief Note on the Lending Environment.) With the passage of financial reform and the discussion about the role of the government-sponsored entities (GSEs) in the future, the FHA may undergo additional changes as well.

As the FHA has grown in relative market share and size, concerns have grown as well over the program’s viability. Increased delinquencies have led to a decline in the program’s capital reserves. While an in-depth examination of the financial condition of the FHA program is beyond the scope of this report, this topic is covered in a subsequent report on the quality and performance of recent FHA borrower cohorts.

Data Source

The data for this national examination come from the Home Mortgage Disclosure Act (HMDA) database. While the HMDA database does not contain information on all mortgage originations, it covers the large majority;1 among those databases containing information on mortgage originations, it is particularly well-suited for providing time series data on lending volume for the FHA and for the mortgage market as a whole and for the FHA’s market share.2

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  • 1 For a complete discussion of HMDA reporting requirements, see the publication by the Federal Financial Institutions Examination Council, Who Reports HMDA Data? (Washington, D.C., 2010); available at http://www.ffiec.gov/hmda/reporter.htm.
  • 2 Similar statistics calculated from other databases would not be expected to be exactly the same, although the same trends would be evident.
  • Last update: February 15, 2011