Examining the Proper Role of the Federal Housing Administration in Our Mortgage Insurance Market

A home for sale in Mount Lebanon, Pennsylvania, Thursday, January 3, 2013.

CAP Director of Housing Finance and Policy Julia Gordon testifies before the House Committee on Financial Services. Read the full testimony (CAP Action)

Good morning Chairman Hensarling, Ranking Member Waters, and members of the committee. Thank you for the opportunity to testify today about the role of the Federal Housing Administration in our mortgage insurance market.

The Federal Housing Administration is a government-run mortgage insurer. It doesn’t actually lend money to homebuyers but instead insures the loans made by private lenders, as long as the loan does not exceed a certain size and meets strict underwriting standards. In exchange for this protection, the agency charges upfront and annual fees, the cost of which is passed on to borrowers.

The FHA was established in 1934 to help promote long-term stability in the U.S. housing market. Emerging from the foreclosure crisis that occurred during the Great Depression, FHA transformed housing finance by demonstrating how long-term, fixed-rate mortgages can help middle-class families build long-term economic security even through uncertain economic times. FHA was integral in transforming the standard mortgage from a 50 percent LTV, short-duration loan that required frequent refinancing to a 20 percent down, long-term, fixed-rate mortgage.

In the almost 80 years since, FHA has helped more than 40 million creditworthy families realize the benefits of homeownership and has developed a niche of providing low-down-payment loans through its single-family programs to creditworthy, lower- wealth, and otherwise underserved borrowers.

CAP Director of Housing Finance and Policy Julia Gordon testifies before the House Committee on Financial Services. Read the full testimony (CAP Action)