Mortgage Basics: What is FHA, and How Does It Work?
The Federal Housing Administration (FHA) is a government-created entity that essentially runs and manages an insurance pool to help lenders manage mortgage risks.The insurance fund program was created in 1934 as part of the National Housing Act. Its creation came in the wake of the Great Depression and a wave of bank failures that made getting a mortgage nearly impossible. The FHA’s premise is that in exchange for making mortgages under common standards, lenders would be indemnified against losses on mortgages they made. The FHA was the mainstay of the mortgage industry until the creation of Fannie Mae (1938) and Freddie Mac (1970), whose mortgage missions were different and whose roles in the market have changed over time.