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What is FHA and why is it important to the mortgage industry? The Federal Housing Administration (FHA) was established in 1934 to facilitate homeownership in the United States during the depression of the 1930’s. Its primary role was and is to insure FHA approved mortgage lenders, thereby adding stability to the marketplace. With the backing of this governmental agency lenders can more confidently loan money in cases that, without this backing, the lender would not normally consider.
Traditionally, FHA insured mortgages were obtained as a low down payment option for first time homebuyers and others with little cash as down payment. Though once considered the ugly sister to the more popular conventional mortgage products, since the financial collapse of 2008, the number of new FHA insured mortgage has surged dramatically.
What is an FHA insured reverse mortgage?In 1988, President Reagan signed the FHA Reverse Mortgage Bill into law which placed FHA an insuring and regulatory body in the reverse mortgage industry. Since 1988, FHA has insured over 200,000 reverse mortgages and FHA reverse mortgages account for at least 98% of all reverse mortgages in the U.S.
Very much like regular forward mortgages, FHA insures reverse mortgage lenders against foreclosure losses, thereby opening up the market to more possible reverse mortgage borrowers than would normally exist without FHA involvement.
Furthermore, acting as the regulatory body, FHA sets the rules for the entire industry and actively and prodigiously audits FHA approved lenders for compliance reasons.
At least 10% of all FHA loans are eventually audited by FHA for compliance purposes. Those lenders failing to comply with the set rules are subject to heavy fines and if problems persist a lender can be stripped of its FHA approved status. For most lenders, the latter penalty is tantamount to expulsion from the mortgage industry.