FHA Insurance

Through its single-family and multifamily mortgage insurance programs, the Federal Housing Administration (FHA), which is based within the U.S. Department of Housing and Urban Development, plays an indispensable role in financing affordable housing opportunities. FHA provides mortgage insurance for the purchase of single- and multifamily housing targeted to low and moderate-income families that insures lenders against losses in case of mortgage default, enabling private industry to construct and rehabilitate multifamily housing, single-family homes, and assisted living facilities for low and moderate-income families and individuals.

HFAs and FHA Insurance
State HFAs use FHA single-family mortgage insurance in combination with Mortgage Revenue Bonds (MRBs) and other funding sources to finance modestly priced homes for first-time homebuyers. In 2018, just over half of HFA program loans were insured by FHA.

HFAs’ status as government entities automatically qualifies them to provide down payment assistance in connection with FHA-insured loans, a privilege not enjoyed by most private originators. Such assistance allows HFAs to assist creditworthy families who may not have the means to afford a large down payment. Over three-quarters of HFA borrower’s in 2017 and 2018 received down payment assistance. Maintaining HFAs’ authority to provide down payment and other secondary financing on a preferred basis with FHA single-family loans is one of NCSHA’s top Legislative, Business, and Regulatory priorities.

Future of FHA
During the recent economic crisis, FHA’s single-family mortgage portfolio experienced substantial losses. These losses were largely the result of adverse circumstances, not poor management or underwriting. At the same, FHA’s lending increased substantially as it played a countercyclical role in helping to boost the weakened housing market.

FHA loan performance has improved considerably in recent years — its serious delinquency rate has declined 50 percent since and is near a ten-year low — and its capital ratio has also exceeded its statutory minimum level for the past five years. FHA’s capital ratio more than doubled in fiscal year 2019.

Some lawmakers and outside experts to push for reforms that would restrict FHA’s homeownership activities, including the possible adoption of risk-based pricing that would charge borrowers deemed riskier with higher insurance premiums. NCSHA supports efforts to help FHA maintain its financial health, but cautions policymakers to be careful not to overreach and risk pricing the responsible low-and moderate-income borrowers that FHA traditionally serves out of the housing market.