Real Estate in Northeast Florida and Around the World

Today's economic climate is often compared to the Depression Era 1930's.  Interestingly enough, one governmental program that was created out of that era is a strong player in today's economic recovery - just as it was 75 years ago.  FHA loans celebrate their 75th year this year, and I am glad to see that it is still serving it's purpose today as it did in 1934 when the program was created.

The Federal Housing Administration was created to provide the means for everyday people the ability to purchase and own their own homes, who could not otherwise afford to purchase using "conventional" means.  Prior to its creation, "conventional" loans to purchase homes typically required a 50% down payment, making home ownership unavailable to most people, especially in the dark days of high unemployment and cash shortages that were abundant in the 1930's.  In addition, the loan terms typically were to include a balloon payment at the end of 5 years - and the bank would then reconsider whether they wanted to extend those terms. 

The FHA loan program costs are self-funding, and do not cost the American taxpayer funds.  Each loan is required to have mortgage insurance, which is paid into a fund that in turn, covers the expense of running the program, including covering the default expenses to the lender.  The actual loan proceeds are provided by other sources, whether it be a bank or secondary market investor, and is guaranteed as a security through the quasi-governmental agency known as Ginnie Mae - a nickname for the Government National Mortgage Association.  FHA insures the lender in the event of default by the buyer - they do not actually lend the money.  However, the loan must meet the standards and guidelines set forth by the Federal Housing Administration.  FHA was put under the U. S. Department of Housing and Urban Development (HUD) when it was created in 1965.

Through the turbulent 1980's, FHA played a critical role in helping buyers, especially first time home buyers using state-agency bond program funding, buy their home and keep the housing market going through the rough times.  In the 1990's when new and unique (now considered foolish and toxic) loans came around, the FHA loan program was considered out of touch, out of date and too expensive.  However, through those times, FHA did not relax their guidelines to bend to the critics, and subsequently, FHA insured loans are not experiencing the default levels, criticism or included in the label of "toxic assets" as their conventional counterparts are getting.

So, let's celebrate FHA's 75th birthday by remembering it's purpose - to assist home buyers in securing financing where conventional loans are not available - and get the word out to our governmental legislators that we need to continue to boost this program, and keep it around for another 75 years!  Many of our neighborhoods are in existence because of FHA - and I can't wait to see you around one of them!

Here are some interesting facts I pulled from the www.HUD.gov website regarding FHA loans.

When the FHA was created, the housing industry was flat on its back:

• Two million construction workers had lost their jobs.
• Terms were difficult to meet for homebuyers seeking mortgages.
• Mortgage loan terms were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
• America was primarily a nation of renters. Only four in 10 households owned homes.

• During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war.

  In the 1950s, 1960s and 1970s, the FHA helped to spark the production of millions of units of privately-owned apartments for elderly, handicapped and lower income Americans. When soaring inflation and energy costs threatened the survival of thousands of private apartment buildings in the 1970s, FHA's emergency financing kept cash-strapped properties afloat.

  The FHA moved in to steady falling home prices and made it possible for potential homebuyers to get the financing they needed when recession prompted private mortgage insurers to pull out of oil producing states in the 1980s.