Federal Housing Administration Case Study

In 1934, the United States government passed the National Housing Act (NHA), which was signed by President Franklin D. Roosevelt as part of the New Deal social welfare programs (Jansson, 2015). Collectively, the New Deal programs were addressing the immense human suffering and economic hardship of the Great Depression (Jansson, 2015). Specifically, to address the housing crisis brought about by the Great Depression, President Roosevelt signed the NHA of 1934, which created the Federal Housing Administration (FHA) (Gotham, 2000). So, the FHA’s goals were to increase homeownership, decrease risks for lenders, and bolster employment (Gotham, 2000). Further, the FHA provided mortgage insurance to FHA-approved private lending agencies, with the government assuming the risk against default through premiums paid by the borrower (Gotham, 2000). Therefore, the FHA stimulated lending by providing protection from mortgage default, because the government would pay the lender in the event the homeowner was unable to pay (Gotham, 2000). Equally important, the FHA provided national housing standards for the housing construction industry (Gotham, 2000). Also, the FHA decreased
First, one of the functions of the FHA was to lower the risk for mortgage lenders making them eager to issue home loans (Kanovsky, 2015). This was accomplished by federal insurance for these mortgages, with the guarantee that the government would cover the mortgage in the event the borrower defaulted (Kanovsky, 2015). In order to lower the government’s risk of borrowers defaulting or foreclosures, the FHA would continue the well established practice of approving borrowers based on credit worthiness (MacLean, 1934). Also, the borrower was expected to pay premiums built into the mortgage payments that would cover the insurance costs for the government (Kanovsky,