FHA-Insured Home Loans: An Overview
Katie Jones
Analyst in Housing Policy
January 20, 2015
Congressional Research Service
7-5700
www.crs.gov
RS20530

---

FHA-Insured Home Loans: An Overview

Summary
The Federal Housing Administration (FHA), an agency of the Department of Housing and Urban
Development (HUD), was created by the National Housing Act of 1934. FHA does not make
mortgage loans. Rather, it insures lenders against the possibility of borrowers defaulting on
mortgages that meet certain underwriting and other criteria, thereby expanding the availability of
mortgage credit beyond what may be available otherwise. If the borrower defaults on the
mortgage, FHA will repay the lender the remaining amount owed.
A household that obtains an FHA-insured mortgage must meet FHA’s eligibility and underwriting
standards, including showing that it has sufficient income to repay a mortgage. FHA requires a
minimum down payment of 3.5% from most borrowers, which is lower than the down payment
required for most other types of mortgages. FHA-insured mortgages cannot exceed a statutory
maximum mortgage amount, which varies by area and is based on area median house prices but
cannot exceed a specified ceiling in high-cost areas. (The ceiling is currently set at $625,500 in
high-cost areas.) Borrowers are charged fees, called mortgage insurance premiums, in exchange
for the insurance.
FHA’s share of the mortgage market tends to vary with economic conditions and other factors. In
recent years, due to housing market turmoil and a contraction of private lending, FHA has been
insuring a larger share of mortgages than it had in previous years. Its overall share of the
mortgage market increased from about 3% in calendar year 2005 to 21% in 2009, and was about
14% in 2013. In FY2014, FHA insured nearly 800,000 new loans with a combined principal
balance of $135 billion.
FHA-insured mortgages, like all mortgages, have experienced increased default rates in recent
years, leading to concerns about the stability of the FHA insurance fund for single-family
mortgages, the Mutual Mortgage Insurance Fund (MMIF). In response to these concerns, FHA
has recently adopted a number of policy changes in an attempt to limit risk to the MMIF. These
changes have included raising the fees that it charges and making changes to certain eligibility
criteria for FHA-insured loans.

Congressional Research Service

---

FHA-Insured Home Loans: An Overview

Contents
Introduction ...................................................................................................................................... 1
Background ...................................................................................................................................... 1
History ....................................................................................................................................... 1
Current Role .............................................................................................................................. 2
Features of FHA-Insured Mortgages ............................................................................................... 4
Eligibility and Underwriting Guidelines ................................................................................... 5
Owner Occupancy ..................................................................................................................... 5
Eligible Loan Purposes .............................................................................................................. 5
Loan Term.................................................................................................................................. 6
Interest Rates ............................................................................................................................. 6
Down Payment .......................................................................................................................... 6
Maximum Mortgage Amount .................................................................................................... 6
Mortgage Insurance Fees (Premiums) ....................................................................................... 8
Options for FHA-Insured Loans in Default ............................................................................. 11
Program Funding ........................................................................................................................... 12
Program Activity ............................................................................................................................ 14
Number of Mortgages Insured ................................................................................................. 14
Market Share ........................................................................................................................... 15

Figures
Figure 1.FHA’s Share of the Mortgage Market, 2001-2013 .......................................................... 16

Tables
Table 1. FHA Maximum Mortgage Amounts .................................................................................. 8
Table 2. Annual and Up-Front Mortgage Insurance Premiums ..................................................... 10
Table 3. Loss Mitigation Options................................................................................................... 11
Table 4. Number of New Mortgages Insured by FHA in FY2014 ................................................. 14
Table 5. Number and Dollar Volume of Outstanding FHA-Insured Mortgages in FY2014 .......... 15
Table A-1. FHA-Insured Mortgage Origination Activity............................................................... 17

Appendixes
Appendix. FHA’s Market Share Since 2001 .................................................................................. 17

Congressional Research Service

---

FHA-Insured Home Loans: An Overview

Contacts
Author Contact Information........................................................................................................... 18
Acknowledgments ......................................................................................................................... 18

Congressional Research Service

---

FHA-Insured Home Loans: An Overview

Introduction
The Federal Housing Administration (FHA) is an agency of the Department of Housing and
Urban Development (HUD) that insures private mortgage lenders against the possibility of
borrowers defaulting on certain mortgage loans.1 If a mortgage borrower defaults on a
mortgage—that is, does not repay the mortgage as promised—and the home goes to foreclosure,
FHA pays the lender the remaining amount that the borrower owes. FHA insurance protects the
lender, rather than the borrower, in the event of borrower default; a borrower who defaults on an
FHA-insured mortgage will still experience the consequences of foreclosure. In order to be
eligible for FHA insurance, the mortgage must be originated by a lender that has been approved
by FHA, and the mortgage and the borrower must meet certain criteria.
FHA is one of three government agencies that provide insurance or guarantees on certain home
mortgages made by private lenders, along with the Department of Veterans Affairs (VA) and the
United States Department of Agriculture (USDA).2 Of these federal mortgage insurance
programs, FHA is the most broadly targeted. Unlike VA- and USDA-insured mortgages, the
availability of FHA-insured mortgages is not limited by factors such as veteran status, income, or
whether the property is located in a rural area. However, the availability or attractiveness of FHA-
insured mortgages may be limited by other factors, such as the maximum mortgage amount that
FHA will insure, the fees that it charges for insurance, and its eligibility standards.
This report provides background on FHA’s history and market role and an overview of the basic
eligibility and underwriting criteria for FHA-insured home loans. It also provides data on the
number and dollar volume of mortgages that FHA insures, along with data on FHA’s market share
in recent years. It does not go into detail on the financial status of the FHA mortgage insurance
fund; for information on FHA’s financial position, see CRS Report R42875, FHA Single-Family
Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund (MMI Fund), by
Katie Jones. Recent FHA policy changes are discussed in CRS Report R43531, FHA Single-
Family Mortgage Insurance: Recent Policy Changes and Proposed Legislation, by Katie Jones.
Background
History
The Federal Housing Administration (FHA) was created by the National Housing Act of 1934,3
during the Great Depression, to encourage lending for housing and to stimulate the construction
industry. Prior to the creation of FHA, few mortgages exceeded 50% of the property’s value and

1 This report addresses FHA’s program for insuring mortgages on single-family homes, which is by far the largest FHA
program. However, FHA is also authorized to insure mortgages on a variety of other types of properties, including
multifamily buildings and hospitals and other health care facilities. These FHA programs are not discussed in this
report.
2 VA provides guarantees on certain home mortgages made to veterans, and USDA insures certain home mortgages
made to lower-income households in rural areas. For more information on VA- and USDA-guaranteed mortgages, see
CRS Report R42504, VA Housing: Guaranteed Loans, Direct Loans, and Specially Adapted Housing Grants, by Libby
Perl and CRS Report RL31837, An Overview of USDA Rural Development Programs, by Tadlock Cowan.
3 The National Housing Act of 1934 is P.L. 73-479, and is codified at 12 U.S.C. 1701 et seq.
Congressional Research Service
1

---

FHA-Insured Home Loans: An Overview

most mortgages were written for terms of five years or less. At the end of the five-year term, the
remaining loan balance had to be repaid or the mortgage had to be renegotiated. Borrowers
generally had little trouble in obtaining new mortgages. During the Great Depression, however,
lenders were unable or unwilling to refinance many of the loans that became due. Thus, many
borrowers lost their homes through foreclosure, and lenders lost money because property values
were falling. Lenders became wary of the mortgage market.
FHA institutionalized a revolutionary idea: 20-year mortgages on which the loan would be
completely repaid at the loan term. If borrowers defaulted, FHA insured that the lender would be
fully repaid. Mortgage instruments were standardized, and a new confidence was instilled in the
mortgage market. Investment in housing was stimulated, and its ripple effects were felt
throughout the economy. Eventually, lenders began to make long-term mortgages without FHA
insurance if borrowers made significant down payments. Over time, 15- and 30-year mortgages
have become standard mortgage products.
When the Department of Housing and Urban Development (HUD) was created in 1965, FHA
became an agency of HUD. Today, FHA is intended to facilitate access to affordable mortgages
for some households who otherwise might not be well-served by the private market, such as those
with smaller down payments. Furthermore, it facilitates access to mortgages during economic or
mortgage market downturns by continuing to insure mortgages when the availability of mortgage
credit has otherwise tightened. For this reason, it is said to play a “countercyclical” role in the
mortgage market—that is, it tends to insure more mortgages when the mortgage market or overall
economy is weak, and fewer mortgages when the economy is strong and other types of mortgages
are more readily available.
Current Role
Facilitating Access to Mortgage Credit
Some prospective homebuyers may have the income to sustain monthly mortgage payments but
lack the funds to make a large down payment or otherwise have difficulty obtaining a mortgage.
Borrowers with small down payments, weaker credit histories, or other characteristics that
increase their credit risk might find it difficult to obtain a mortgage at an affordable interest rate,
or at all. This has raised a policy concern that some borrowers with the income to repay a
mortgage might be unable to obtain affordable mortgages. FHA mortgage insurance is intended to
make lenders more willing to offer affordable mortgages to these borrowers by insuring the
lender against the possibility of borrower default.
FHA-insured loans have lower down payment requirements than most conventional mortgages.
(Conventional mortgages are mortgages that are not insured by FHA or guaranteed by another
government agency, such as VA or USDA.4) Because saving for a down payment is often the
biggest barrier to homeownership for first-time homebuyers and lower- or moderate-income
borrowers, the smaller down payment requirement for FHA-insured loans may allow these types

4 Conventional mortgages include mortgages that are purchased by the government-sponsored enterprises (GSEs)
Fannie Mae and Freddie Mac. Although technically not government agencies, Fannie Mae and Freddie Mac are
currently under government conservatorship and have received government financial assistance. Mortgages that meet
Fannie Mae’s and Freddie Mac’s criteria are referred to as “conforming” mortgages.
Congressional Research Service
2

---

FHA-Insured Home Loans: An Overview

of households to obtain a mortgage earlier than they otherwise could. (Borrowers with down
payments of less than 20% could also obtain non-FHA mortgages with private mortgage
insurance. See the nearby text box on “FHA and Private Mortgage Insurance.”) FHA-insured
mortgages also have less stringent requirements related to credit history than many conventional
loans. This might make FHA-insured mortgages attractive to borrowers without credit histories or
with weaker credit histories, who would either find it difficult to take out a mortgage absent FHA
insurance or may find it more expensive
to do so.5
FHA and Private Mortgage Insurance
FHA-insured mortgages play a
Another option for borrowers with small down payments
particularly large role for first-time
might be to obtain mortgage insurance from a private
homebuyers, low- and moderate-income
company, rather than from a government agency like FHA. This
households, and minorities. For example,
is known as private mortgage insurance (PMI). Conventional
mortgages with down payments of less than 20% are generally
in FY2014, 81% of FHA-insured
required to carry PMI.6 Therefore, borrowers with a down
mortgages made to purchase a home
payment of less than 20% may find themselves choosing
(rather than to refinance an existing
between a conventional mortgage with PMI or an FHA-insured
mortgage) were obtained by first-time
mortgage.7
homebuyers.9 Nearly one-third of these
Whether PMI or FHA insurance is a more attractive option for
mortgages for first-time homebuyers
a specific borrower will depend on a number of factors,
were made to minority households, and
including the borrower’s circumstances, the respective
underwriting standards, and the fees charged by FHA and PMI
FHA mortgages accounted for nearly half
companies at a given point in time, which can be affected by
of all home purchase mortgages made to
economic conditions and the features of the mortgage itself.8
black and Hispanic households.10

5 Historically, many FHA-insured mortgages have been made to borrowers with credit scores on the lower end of the
spectrum. However, given the tightening of mortgage credit in response to the economic downturn in recent years,
FHA has recently been insuring a greater share of mortgages to borrowers with higher credit scores. For example, in
FY2006 about 25% of FHA-insured loans were made to borrowers with credit scores at 680 or above, and about 25%
were made to borrowers with credit scores below 600. In FY2013, nearly 55% of FHA-insured mortgages were made
to borrowers with credit scores at 680 or above, and less than 1% of loans were made to borrowers with credit scores
below 600. See Integrated Financial Engineering, Inc., Actuarial Review of the Federal Housing Administration Mutual
Mortgage Insurance Fund (Excluding HECMs) for Fiscal Year 2014, prepared for the Department of Housing and
Urban Development, p. 44.
6 This is largely due to the requirements of Fannie Mae and Freddie Mac, which influence a large part of the mortgage
market. By statute, Fannie Mae and Freddie Mac cannot purchase mortgages where the mortgage amount exceeds 80%
of the value of the home unless the mortgage includes some kind of credit enhancement, such as private mortgage
insurance. In December 2014, Fannie Mae and Freddie Mac announced that they would begin to accept certain
mortgages with down payments as low as 3% with private mortgage insurance (previously, they had typically required
a down payment of at least 5%).
7 Borrowers with less than a 20% down payment have options other than mortgage insurance. For example, during the
mid-2000s it became more common for borrowers to take out a “piggyback loan,” or a second mortgage to cover part
(or all) of the purchase price that exceeded 80% of the value of the home. These types of loans became much less
common as mortgage credit standards tightened in response to economic and housing market turmoil in the late 2000s.
8 There are some differences between the pricing of PMI and FHA insurance. For one thing, PMI companies tend to
charge different prices based on certain risk features of the mortgage, whereas FHA charges most borrowers similar
fees. Furthermore, PMI companies are more likely to raise prices or reduce the amount of their insurance business in
regions experiencing economic downturns or in periods of national economic distress. FHA, on the other hand, does
not usually increase or decrease prices in response to specific market conditions.
9 U.S. Department of Housing and Urban Development, Annual Report to Congress Fiscal Year 2014 Financial Status
FHA Mutual Mortgage Insurance Fund, November 17, 2014, p. 18, http://portal.hud.gov/hudportal/documents/huddoc?
id=FY2014FHAAnnRep11_17_14.pdf.
10 Ibid., p. 18-20.
Congressional Research Service
3

---

FHA-Insured Home Loans: An Overview

Since FHA-insured mortgages are often obtained by borrowers who cannot make large down
payments or those with weaker credit histories, some have questioned whether FHA-insured
mortgages are similar to subprime mortgages.11 FHA-insured mortgages and subprime mortgages
may appeal to some of the same pool of borrowers, such as those with lower credit scores.
However, FHA-insured mortgages are prohibited from carrying the full range of features that
many subprime mortgages could carry. For example, FHA-insured loans must be fully
documented, and they cannot include features such as negative amortization.12 (FHA mortgages
can include adjustable interest rates.) Such features appear to have contributed to high default and
foreclosure rates on subprime mortgages. Nevertheless, some have suggested that FHA-insured
mortgages are too risky, and that they can harm borrowers by providing mortgages that often have
a higher likelihood of default than other mortgages due to combinations of risk factors such as
low down payments and lower credit scores.13
Countercyclical Role
Traditionally, FHA plays a countercyclical role in the mortgage market, meaning that it tends to
insure more mortgages when mortgage credit markets are tight and fewer mortgages when
mortgage credit is more widely available. A major reason for this is that FHA continues to insure
mortgages that meet its standards even during market downturns or in regions experiencing
economic turmoil. When the economy is weak and lenders and private mortgage insurers tighten
credit standards and reduce lending activity, FHA-insured mortgages may be the only mortgages
available to some borrowers, or may have more favorable terms than mortgages that lenders are
willing to make without FHA insurance. When the economy is strong and mortgage credit is more
widely available, many borrowers may find it easier to qualify for affordable conventional
mortgages.
Features of FHA-Insured Mortgages
This section briefly describes some of the major features of FHA-insured mortgages for
purchasing or refinancing a single-family home.14 Single-family homes are defined as properties
with one to four separate dwelling units.15

11 There is not a consensus definition of subprime mortgages, but they generally refer to mortgages made to borrowers
with credit scores below certain thresholds. Many subprime mortgages contained non-traditional features, but not all
subprime mortgages contained these features, and a mortgage does not have to have non-traditional features to be
considered subprime. For more information on how FHA-insured mortgages compare to subprime mortgages, see
archived CRS Report R40937, The Federal Housing Administration (FHA) and Risky Lending, by Darryl E. Getter.
12 With a negative amortization loan, borrowers have the option to pay less than the full amount of the interest due for a
set period of time. The loan “negatively amortizes” as the remaining interest is added to the outstanding loan balance,
so that the loan balance increases over the time rather than decreasing as it would with positive amortization.
13 For example, see Edward J. Pinto, How the FHA Hurts Working-Class Families and Communities, December 2012,
http://www.aei.org/files/2013/01/07/-how-the-fha-hurts-workingclass-families-and-communities_133838366627.pdf.
14 Detailed information on FHA’s underwriting and eligibility requirements can be found in HUD Housing Handbook
4155.1, “Mortgage Credit Analysis for Mortgage Insurance on One- to Four-Unit Mortgage Loans,”
http://portal.hud.gov/hudportal/HUD?src=/program_offices/administration/hudclips/handbooks/hsgh/4155.1. HUD is in
the process of consolidating its requirements into a new single-family housing handbook, the first sections of which
become effective in June 2015. Sections of the forthcoming single-family handbook and their effective dates can be
found on HUD’s website at http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/handbook_4000-1.
15 For example, a duplex would be considered a single-family property under this definition. A borrower could obtain
(continued...)
Congressional Research Service
4

---

FHA-Insured Home Loans: An Overview

Eligibility and Underwriting Guidelines
FHA-insured loans are available to borrowers who intend to be owner-occupants and who can
demonstrate the ability to repay the loans according to the terms of the contract. In general,
individuals who have previously defaulted on a mortgage are not eligible for FHA-insured loans
for at least three years.16 FHA-insured loans must be underwritten in accordance with accepted
practices of prudent lending institutions and FHA requirements. The FHA credit analysis
worksheet is used to examine the applicant’s personal and financial status, monthly shelter
expenses, funds required for closing expenses, effective monthly income, and debts and
obligations.
As a general rule, the applicant’s prospective mortgage payment should not exceed 31% of gross
effective monthly income. The applicant’s total obligations, including the proposed housing
expenses, should not exceed 43% of gross effective monthly income. If these ratios are not met,
the borrower may be able to present the presence of certain compensating factors, such as savings
history and past credit management, in order to qualify for an FHA-insured loan.17
Since October 4, 2010, FHA has required a minimum credit score of 500, and has required higher
down payments from borrowers with credit scores below 580 than from borrowers with credit
scores above that threshold.18 See the “Down Payment” section for more information on down
payment requirements for FHA-insured loans.
Owner Occupancy
Generally, for loans closed on or after December 15, 1989, borrowers must intend to occupy the
property as a principal residence. Property that has been acquired by FHA as a result of default or
foreclosure may be sold to owner-occupants or investors, and in some cases the purchasers of
these homes may be able to obtain FHA-insured loans.
Eligible Loan Purposes
FHA-insured loans may be used to purchase one-family detached homes, townhomes, rowhouses,
two- to four-family buildings, manufactured homes and lots, and condominiums in developments
approved by FHA.19 FHA-insured loans may also be obtained to build a home; to repair, alter, or

(...continued)
an FHA-insured mortgage to purchase a duplex, live in one unit, and rent out the second unit. The borrower must
intend to occupy one of the units as his or her primary residence.
16 Exceptions can be made if the foreclosure was due to certain extenuating circumstances, such as serious medical
issues, if the borrower has re-established a good credit record since the foreclosure.
17 See Chapter 4, Section F of HUD Housing Handbook 4155.1 at http://portal.hud.gov/hudportal/documents/huddoc?
id=4155-1_4_secF.pdf.
18 U.S. Department of Housing and Urban Development, Mortgagee Letter 2010-29, September 3, 2010,
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-29ml.pdf.
19 Particular requirements that apply to FHA insurance of manufactured housing, condominium, and co-op loans are
described in FHA Mortgagee Letters, which are available at http://www.hud.gov/offices/adm/hudclips/letters/
mortgagee/.
Congressional Research Service
5

---

FHA-Insured Home Loans: An Overview

improve a home; to refinance an existing home loan; to simultaneously purchase and improve a
home; or to install a solar heating and cooling system or other weatherization improvements.
Loan Term
FHA-insured mortgages may be obtained with loan terms of up to 30 years.
Interest Rates
The interest rate on an FHA-insured loan is negotiated between the borrower and lender. The
borrower has the option of selecting a loan with an interest rate that is fixed for the life of the loan
or one on which the rate may be adjusted annually.
Down Payment
FHA requires a lower down payment than most other types of mortgages. Under changes made by
the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289), borrowers are required
to contribute at least 3.5% in cash or its equivalent to the cost of acquiring a property with an
FHA-insured mortgage. (Prior law had required borrowers to contribute at least 3% in cash or its
equivalent.) Amounts borrowed from a family member are considered as cash for this purpose.
Prohibited sources of the required funds include the home seller, any entity that financially
benefits from the transaction, and any third party that is directly or indirectly reimbursed by the
seller or by anyone that would financially benefit from the transaction. HUD has interpreted the
3.5% cash contribution as a down payment requirement and has specified that contributions
toward closing costs cannot be counted toward it.20
Since October 4, 2010, FHA has required a 10% down payment from borrowers with credit
scores between 500 and 579, while borrowers with credit scores of 580 or above are still required
to make a down payment of at least 3.5%. FHA no longer insures loans made to borrowers with
credit scores below 500.21
Maximum Mortgage Amount
There is no income limit for borrowers seeking FHA-insured loans. However, FHA-insured
mortgages cannot exceed a maximum mortgage amount set by law.22 The maximum mortgage
amounts allowed for FHA-insured loans vary by area, based on a percentage of area median home
prices.23 Different limits are in effect for one-unit, two-unit, three-unit, and four-unit properties.

20 U.S. Department of Housing and Urban Development, Mortgagee Letter 2008-23, September 25, 2008,
http://portal.hud.gov/hudportal/documents/huddoc?id=DOC_19737.pdf.
21 U.S. Department of Housing and Urban Development, Mortgagee Letter 2010-29, September 3, 2010,
http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/10-29ml.pdf.
22 The FHA maximum mortgage amounts are codified at 12 U.S.C. §1709(b)(2). The statute allows for special higher
limits for Alaska, Hawaii, Guam, and the Virgin Islands. To look up the maximum mortgage amount for a specific area,
see HUD’s website at https://entp.hud.gov/idapp/html/hicostlook.cfm.
23 FHA calculates area-by-area limits each year based on the prior year’s area median home price data, so the actual
dollar amount of the limit in a given area can change from year to year. The maximum mortgage amounts are set on a
(continued...)
Congressional Research Service
6

---

FHA-Insured Home Loans: An Overview

The limits are subject to a statutory floor and ceiling; that is, the maximum mortgage amount that
FHA will insure in a given area cannot be lower than the floor, nor can it be higher than the
ceiling.
In 2008, Congress temporarily increased the maximum mortgage amounts in response to turmoil
in the housing and mortgage markets, with the intention of allowing more households to qualify
for FHA-insured mortgages during a period of tighter credit availability.24 New permanent
maximum mortgage amounts were established by the Housing and Economic Recovery Act of
2008 (HERA, P.L. 110-289). These maximum mortgage amounts were lower than the temporarily
increased amounts, but higher than the previous permanent limits. However, the higher temporary
limits were extended for several years, until they expired at the end of calendar year 2013.25
As of January 1, 2014, the maximum mortgage amounts are set at the permanent HERA levels.
For a one-unit home, HERA established the maximum mortgage amounts at 115% of area median
home prices, with a floor of $271,050 and a ceiling of $625,500 in high-cost areas.26 These
maximum mortgage amounts, and the maximum mortgage amounts for 2-4 unit homes, are
shown in Table 1.

(...continued)
county basis, except that in metropolitan statistical areas (MSAs) the maximum mortgage amount for the entire MSA is
based on the county within the MSA that has the highest median home prices.
24 In early 2008, Congress enacted the Economic Stimulus Act of 2008 (ESA, P.L. 110-185), which temporarily
increased the maximum mortgage amounts to 125% of area median home prices, with a floor of $271,050 and a high-
cost area ceiling of $729,750. Immediately prior to the enactment of ESA, the limits had been set at 95% of area
median house prices, with a floor of $200,160 and a ceiling of $362,790 for a one-unit home. See U.S. Department of
Housing and Urban Development, Mortgagee Letter 2008-02, January 18, 2008, available at http://portal.hud.gov/
hudportal/HUD?src=/program_offices/administration/hudclips/letters/mortgagee/2008ml.
25 The American Recovery and Reinvestment Act of 2009 (ARRA, P.L. 111-5) amended the maximum mortgage
amounts for calendar year 2009, setting them at the higher of (1) the 2008 limits set by ESA, or (2) the original 2009
limits set by HERA. Under ARRA, the floor was $271,050, the high-cost area limit was $729,750, and the limit in all
other areas was the higher of 125% of 2007 area median home prices (the ESA limit) or 115% of more current area
median home prices (the HERA limit). The ARRA limits were extended several times until they expired at the end of
2013. FHA has been following a policy of not allowing the HERA limits to fall relative to the original HERA limits, so
if current HERA limits (based on the most recent median home prices) are lower than earlier HERA limits (based on
2008 or later area median home prices) in a given area, FHA uses the earlier HERA limits for the purposes of
calculating the maximum mortgage amount in that area.
26 The statutory ceilings and floors are set as a percentage of the conforming loan limit, which is the dollar limit on the
size of mortgages that can be purchased by Fannie Mae and Freddie Mac. Congress can change the ceilings and floors
either by (1) changing the percentages of the conforming loan limit that constitute the ceiling and the floor, or (2)
changing the conforming loan limit itself. Currently, the floor is set at 65% of the conforming loan limit and the ceiling
is set at 150% of the conforming loan limit. The conforming loan limit is currently $417,000, so the floor is $271,050
(65% of $417,000), and the ceiling is $625,500 (150% of $417,000).
Congressional Research Service
7

---

FHA-Insured Home Loans: An Overview

Table 1. FHA Maximum Mortgage Amounts
Maximum
Maximum
Mortgage
Mortgage
Property
Amount
Maximum Mortgage Amount in Areas Between the
Amount
Size
Floora
Floor and the Ceiling
Ceilingb
1-unit
$271,050
115% of area median home prices for a one-unit property
$625,500
2-unit
$347,000
115% of area median home prices for a two-unit property
$800,775
3-unit
$419,425
115% of area median home prices for a three-unit property
$967,950
4-unit
$521,250
115% of area median home prices for a four-unit property
$1,202,925
Source: FHA Mortgagee Letter 2014-25
Notes: Actual mortgage limits in specific areas can be found at https://entp.hud.gov/idapp/html/hicostlook.cfm.
a. This is the maximum mortgage amount in areas where 115% of area median home prices is lower than 65%
of the Freddie Mac limit.
b. This is the maximum mortgage amount in areas where 115% of area median home prices is equal to or
higher than 150% of the Freddie Mac limit. The National Housing Act provides that FHA may adjust the
mortgage limits for loans in Alaska, Hawaii, Guam, and the Virgin Islands to up to 150% of the ceiling.
Mortgage Insurance Fees (Premiums)
Borrowers of FHA-insured loans pay an up-front mortgage insurance premium (MIP) and annual
mortgage insurance premiums in exchange for FHA insurance. These premiums are set as a
percentage of the loan amount. The maximum amounts that FHA is allowed to charge for the
annual and the upfront premiums are set in statute. However, since these are maximum amounts,
HUD has the discretion to set the premiums at lower levels.
Up-Front Mortgage Insurance Premiums
HERA increased the maximum up-front mortgage insurance premium that FHA is permitted to
charge. Currently, the maximum up-front premium that FHA may charge is 3% of the mortgage
amount for a borrower who has not received homeownership counseling and 2.75% of the
mortgage amount for a borrower who has received homeownership counseling. (Prior to HERA,
these were set at 2.25% and 2%, respectively.) Currently, FHA is not charging different up-front
premiums to borrowers who do and do not receive homeownership counseling.
Since April 9, 2012, HUD has set the up-front premium at 1.75% of the loan amount, whether or
not the borrower received homeownership counseling.27 This premium applies to most single-
family mortgages.28

27 U.S. Department of Housing and Urban Development, Mortgagee Letter 12-4, “Single Family Mortgage Insurance:
Annual and Up-Front Mortgage Insurance Premiums – Changes,” March 6, 2012, http://portal.hud.gov/hudportal/
documents/huddoc?id=12-04ml.pdf.
28 The premium changes do not apply to certain FHA programs, including Title I loans and Home Equity Conversion
Mortgages (HECMs). Furthermore, as of June 11, 2012, FHA decreased the up-front mortgage insurance premium to
0.01% of the loan amount for streamline refinance transactions where the original loan was endorsed on or before May
31, 2009.
Congressional Research Service
8

---

FHA-Insured Home Loans: An Overview

Annual Mortgage Insurance Premiums
In August 2010, Congress enacted P.L. 111-229, which raised the maximum annual mortgage
insurance premium that FHA can charge. The amount of the maximum annual premium varies
based on the loan’s initial loan-to-value ratio. For most loans, (1) if the loan-to-value ratio is 95%
or higher, the maximum annual premium is 1.55% of the loan balance, and (2) if the loan-to-value
ratio is less than 95%, the maximum annual premium is 1.5% of the loan balance.29
FHA increased the actual annual premiums that it charges several times in recent years in order to
bring more money into the FHA insurance fund and ensure that it has sufficient funds to pay for
defaulted loans.30 However, in January 2015, FHA announced a decrease in the annual premium
for most single-family loans. For FHA case numbers assigned on or after January 26, 2015, the
annual premiums are 0.85% of the outstanding loan balance if the initial loan-to-value ratio is
above 95% and 0.80% of the outstanding loan balance if the initial loan-to-value ratio is 95% or
below.31 This is a decrease from 1.35% of the loan balance for mortgages where the loan-to-value
ratio is above 95% and 1.30% of the loan balance for mortgages where the loan-to-value ratio is
95% or below, which is what FHA had been charging from April 1, 2013, until January 26,
2015.32 These premiums apply to most single-family mortgages.33 FHA charges lower annual
premiums for mortgages with terms of 15 years or less.
Table 2 shows the up-front and annual mortgage insurance premiums that are in effect as of
January 26, 2015.

29 These annual mortgage insurance premiums apply for mortgages with loan terms that exceed 15 years. Mortgages
with loan terms of 15 years or less are subject to lower annual mortgage insurance premiums.
30 Most of the changes to the mortgage insurance premiums in recent years have been made administratively by FHA,
although the Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78), enacted on December 23, 2011,
required FHA to increase the annual mortgage insurance premium it charges by 10 basis points (one-tenth of one
percentage point). A list of changes to the mortgage insurance premiums, and references to the FHA Mortgagee Letters
that implemented the changes, is available on page 61 of the FY2014 Annual Report to Congress on the Financial
Status of the MMI Fund, http://portal.hud.gov/hudportal/documents/huddoc?id=FY2014FHAAnnRep11_17_14.pdf.
31 U.S. Department of Housing and Urban Development, Mortgagee Letter 2015-01, “Reduction of Federal Housing
Administration (FHA) Annual Mortgage Insurance Premium (MIP) Rates and Temporary Case Cancellation
Authority,” January 9, 2015, http://portal.hud.gov/hudportal/documents/huddoc?id=15-01ml.pdf. FHA charges a higher
annual mortgage insurance premium on loans originated with a principal balance that exceeds $625,500. ($625,500 is
the maximum mortgage amount in high cost areas under HERA, but from June 11, 2012 until the expiration of the
temporarily higher ESA limits on January 1, 2014 FHA could insure loans up to $729,750 in high-cost areas.)
32 U.S. Department of Housing and Urban Development, Mortgagee Letter 13-04, “Revision of Federal Housing
Administration (FHA) Policies Concerning Cancellation of the Annual Mortgage Insurance Premium (MIP) and
Increase to the Annual MIP,” January 31, 2013, http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf.
33 These premium changes do not apply to certain FHA programs, including Title I loans and Home Equity Conversion
Mortgages (HECMs). Furthermore, as of June 11, 2012, FHA decreased the annual mortgage insurance premium to
0.55% of the loan amount for streamline refinance transactions where the original loan was endorsed on or before May
31, 2009.
Congressional Research Service
9

---

FHA-Insured Home Loans: An Overview

Table 2. Annual and Up-Front Mortgage Insurance Premiums
Beginning January 26, 2015

Annual Premium
Up-Front Premium
LTV <= 95%
0.80%
1.75%
LTV > 95%
0.85%
1.75%
Source: FHA Mortgagee Letters 12-04 and 15-01.
Notes: These premiums apply to most FHA-insured single-family loans, with certain exceptions (such as certain
streamline refinance transactions and FHA-insured reverse mortgages). Lower annual premiums are charged for
mortgages with a loan term of 15 years or less.
Premium Refunds and Cancellations
In the past, if borrowers prepaid their loans, they may have been due refunds of part of the up-
front insurance premium that was not “earned” by FHA. The refund amount depended on when
the mortgage closed and declined as the loan matured. The Consolidated Appropriations Act 2005
(P.L. 108-447) amended the National Housing Act to provide that, for mortgages insured on or
after December 8, 2004, borrowers are not eligible for refunds of up-front mortgage insurance
premiums except when borrowers are refinancing existing FHA-insured loans with new FHA-
insured loans. After three years, the entire up-front insurance premium paid by borrowers who
refinance existing FHA-insured loans with new FHA-insured loans is considered “earned” by
FHA, and these borrowers are not eligible for any refunds.34
The annual mortgage insurance premiums are not refundable. However, beginning with loans
closed on or after January 1, 2001, FHA had followed a policy of automatically cancelling the
annual mortgage insurance premium when, based on the initial amortization schedule, the loan
balance reached 78% of the initial property value.35 However, for loans insured on or after June 3,
2013, FHA will continue to charge the annual mortgage insurance premium for the life of the loan
for most mortgages.36 This change is in response to concerns about the financial status of the FHA
insurance fund. FHA has stated that, since it continues to insure the entire remaining mortgage
amount for the life of the loan, and since premiums were cancelled on the basis of the loan
amortizing to a percentage of the initial property value rather than the current value of the home,
FHA has had to pay insurance claims on defaulted mortgages where the borrowers were no longer
paying annual mortgage insurance premiums.37

34 FHA Mortgagee Letter 05-03, available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/
administration/hudclips/letters/mortgagee/2005ml.
35 See FHA Mortgagee Letter 00-38, available at http://portal.hud.gov/hudportal/HUD?src=/program_offices/
administration/hudclips/letters/mortgagee/2000ml.
36 FHA Mortgagee Letter 13-04, available at http://portal.hud.gov/hudportal/documents/huddoc?id=13-04ml.pdf.
Borrowers whose FHA-insured mortgages have loan-to-value ratios of 90% or lower at origination will be able to stop
paying the annual mortgage insurance premiums after 11 years.
37 U.S. Department of Housing and Urban Development, Fiscal Year 2012 Annual Report to Congress on the Financial
Status of the Mutual Mortgage Insurance Fund, p. 54, http://portal.hud.gov/hudportal/documents/huddoc?id=
FHAMMIF2012.pdf. At the time, FHA estimated that about 10% of the losses that FHA incurred on defaulted
mortgages occurred after the annual mortgage insurance premiums had been cancelled.
Congressional Research Service
10

---

FHA-Insured Home Loans: An Overview

Options for FHA-Insured Loans in Default
An FHA-insured mortgage is considered delinquent any time a payment is due and not paid. Once
the borrower is 30 days late in making a payment, the mortgage is considered to be in default. In
general, mortgage servicers may initiate foreclosure on an FHA-insured loan when three monthly
installments are due and unpaid, and they must initiate foreclosure when six monthly installments
are due and unpaid, except when prohibited by law.38 A program of loss mitigation strategies was
authorized by Congress in 1996 to minimize the number of FHA loans entering foreclosure,39 and
has since been revised and expanded to include additional loss mitigation options. Prior to
initiating foreclosure, servicers must attempt to make contact with borrowers and evaluate
whether they qualify for any of these loss mitigation options; the options must be considered in a
specific order. The loss mitigation options that servicers are instructed to pursue on FHA-insured
loans are summarized in Table 3.40
Additional loss mitigation options are available for certain populations of borrowers. By written
agreement with the lender, a borrower in military service may suspend the principal portion of
monthly payments and pay only interest for the period of military service, plus three months.41 On
resumption of payment, loan payments are adjusted so that the loan will be paid in full according
to the original amortization.42 In the past, FHA has also temporarily relaxed rules on the use of
partial claims and loan modifications in specific areas in response to certain presidentially-
declared major disasters, such as Hurricane Katrina.43
Table 3. Loss Mitigation Options

Possible Remedies for FHA Loans in Default
Special
Lender/servicer works out a repayment plan that may include partial or suspended payments
forbearance
for a specified period of time.
Loan
The original mortgage is modified to include the total unpaid amount due. Changes may be
modification
made to the term, interest rate, or type of loan.
Partial claim
The lender advances funds to bring a borrower’s loan current (up to 12 months’ worth of
mortgage payments). FHA pays the lender a partial claim in the amount of the advance, and the
borrower agrees to repay the amount of the advance to FHA at the end of the original loan

38 24 C.F.R. 203.355. State law may prohibit the start of foreclosure proceedings within the time frame specified by
HUD. Also, military service of the borrower may delay foreclosure proceedings (24 C.F.R. 203.346).
39 The loss mitigation program replaced an assignment program; under the assignment program, servicers would assign
a defaulted loan to FHA, which would pay the claim to the lender and then attempt to help the borrower avoid
foreclosure directly. Under the loss mitigation program, servicers are given the responsibility of pursuing loss
mitigation options before completing a foreclosure. P.L. 104-99, the Balanced Budget Downpayment Act, I, terminated
the mortgage assignment program and authorized additional loss mitigation activities.
40 FHA Mortgagee Letters instruct FHA servicers on how to pursue loss mitigation strategies. For example, see
Mortgagee Letter 2000-05, “Loss Mitigation Program – Comprehensive Clarification of Policy and Notice of
Procedural Changes” and Mortgagee Letter 2012-22, “Revisions to FHA’s Loss Mitigation Home Retention Options.”
Additional aspects of FHA’s loss mitigation program are addressed in other Mortgagee Letters.
41 In addition, as amended by HERA, the Servicemembers Civil Relief Act (P.L. 108-189) provides that individuals
called into military service may apply to have any legal action against their homes stayed until nine months after the
release from military service, and foreclosure can be prevented until one year after release from military service.
42 24 C.F.R. 203.345 and 203.346.
43 See, for example, Mortgagee Letter 2005-46, December 1, 2005, available at http://portal.hud.gov/hudportal/HUD?
src=/program_offices/administration/hudclips/letters/mortgagee/2005ml.
Congressional Research Service
11

---

FHA-Insured Home Loans: An Overview

term or when the property is sold.
FHA-HAMP
The borrower’s monthly mortgage payments are reduced to 31% of monthly income using a
combination of a loan modification and a partial claim. The partial claim can be used to provide
a limited amount of principal forbearance, as well as to repay the arrearage.
Pre-foreclosure
Borrower sells the property and uses the proceeds to satisfy the mortgage debt. FHA pays a
sale
partial claim to the lender to make up the difference if the property is sold for less than the
mortgage amount.
Deed-in-lieu of
Borrower deeds the property to FHA and is released from the mortgage.
foreclosure
Sources: 24 C.F.R. 203, Subparts B and C; An Assessment of FHA’s Single-Family Mortgage Insurance Loss Mitigation
Program Final Report (Abt Associates, 2000); HUD Mortgagee Letter 2009-23.
Notes: FHA announced a restructuring of its home retention loss mitigation options in November 2012. This
reorganization removed the partial claim as a standalone option, but allows FHA-HAMP to include a standalone
loan modification, a standalone partial claim, or a loan modification and a partial claim used in combination. For
more information, see FHA Mortgagee Letter 2012-22.
Program Funding
The FHA single-family mortgage insurance program is funded through FHA’s Mutual Mortgage
Insurance Fund (MMIF), which has historically been sufficient to fund the program without
appropriations from Congress.44 Cash flows into the MMIF primarily from insurance premiums
and proceeds from the sale of foreclosed homes. Cash flows out of the MMIF primarily to pay
claims to lenders for mortgages that have defaulted.
FHA maintains both a Financing Account and a Capital Reserve Account within the MMIF. The
Financing Account includes enough funds to cover the expected future costs associated with the
MMIF’s entire portfolio of outstanding loans, based on current assumptions. The Capital Reserve
Account includes additional funds to cover unexpected increases in costs. If there are changes in
the expected costs associated with the MMIF’s portfolio of outstanding loans, then FHA moves
funds between the Financing Account and the Capital Reserve Account as needed to ensure that
there are sufficient funds in the Financing Account to cover projected expenses. If FHA ever
needs to transfer more funds to the Financing Account than it has in the Capital Reserve Account,
it can receive funds from Treasury to make this transfer under existing authority and without any
additional congressional action.45 This occurred for the first time at the end of FY2013, when
FHA received $1.7 billion from Treasury to make a required transfer of funds between the
accounts. The funds that FHA received from Treasury will not be spent immediately, but will be
held in the Financing Account and used to pay insurance claims, if necessary, only after the

44 FHA does receive congressional appropriations for salaries and administrative contract expenses related to the
MMIF.
45 FHA can receive funds from Treasury to cover higher-than-expected costs of insured mortgages under permanent
and indefinite budget authority granted under the Federal Credit Reform Act of 1990 (FCRA), which governs how
FHA and other federal credit programs are accounted for in the budget. The permanent and indefinite budget authority
to cover increased costs of loans and loan guarantees is common to all federal credit programs governed by the FCRA
and is not unique to FHA. The amount of funds that FHA will need to transfer between accounts in the MMI Fund is
determined through a re-estimate of the expected costs of insured loans that is performed each year as part of the annual
budget process. If FHA anticipates needing assistance from Treasury to make the transfer, the amount that it anticipates
needing is included in the President’s budget request.
Congressional Research Service
12

---

FHA-Insured Home Loans: An Overview

remaining funds in the Financing Account are spent. The MMI Fund did not need any additional
funds from Treasury during FY2014.
Section 205 of the National Housing Act46 requires HUD to ensure that the MMIF maintains a
capital ratio of 2.0% at all times. The capital ratio measures the amount of funds that the MMI
Fund currently has on hand, plus the net present value of the future cash flows associated with the
mortgages that FHA currently insures (e.g., the amounts it expects to earn through premiums and
lose through claims paid). It then expresses this amount as a percentage of the total dollar volume
of mortgages that FHA currently insures. In other words, the capital ratio is a measure of the
amount of funds that would remain in the MMI Fund after all future cash flows on the loans that
it currently insures have been realized, assuming that FHA did not insure any more loans going
forward.
The capital ratio has been estimated to be below this mandated 2% level since FY2009. It was
most recently estimated to be 0.41% at the end of FY2014, an improvement from negative 0.11%
at the end of FY2013 and negative 1.44% at the end of FY2012.47
A low capital ratio does not in itself trigger any special assistance from Treasury, but it raises
concerns that FHA could need further assistance in order to continue to hold enough funds in the
Financing Account to cover expected future losses. FHA has taken a number of steps designed to
return the capital ratio to 2% or more, and it has indicated that it will continue to take more steps
to strengthen the insurance fund.48 The steps that it has already undertaken include increasing the
mortgage insurance premiums charged to borrowers; strengthening underwriting requirements,
such as by instituting higher down payment requirements for borrowers with the lowest credit
scores; and increasing oversight of FHA-approved lenders.
For more information on the financial status of the MMI Fund, see CRS Report R42875, FHA
Single-Family Mortgage Insurance: Financial Status of the Mutual Mortgage Insurance Fund
(MMI Fund), by Katie Jones. For more information on policy changes that FHA has made, see
CRS Report R43531, FHA Single-Family Mortgage Insurance: Recent Policy Changes and
Proposed Legislation, by Katie Jones.

46 12 U.S.C. §1711.
47 U.S. Department of Housing and Urban Development, Fiscal Year 2014 Annual Report to Congress on the Financial
Status of the Mutual Mortgage Insurance Fund, page 34. The capital ratio calculation for the MMI Fund includes FHA-
insured reverse mortgages, known as Home Equity Conversion Mortgages (HECMs). While a negative capital ratio
does not mean that FHA is currently out of money, it does suggest that the funds that FHA currently has on hand,
combined with the revenue it expects to earn on mortgages that it currently insures, would not be enough to pay for the
losses it expects to incur in the future on the loans that it currently insures. The calculation of the capital ratio does not
take into account any mortgages that FHA may insure in the future.
48 For example, see the list of policy changes that FHA has made in recent years beginning on page 61 of HUD’s Fiscal
Year 2014 Annual Report to Congress on the Financial Status of the FHA Mutual Mortgage Insurance Fund at
http://portal.hud.gov/hudportal/documents/huddoc?id=FY2014FHAAnnRep11_17_14.pdf.
Congressional Research Service
13

---

FHA-Insured Home Loans: An Overview

Program Activity
Number of Mortgages Insured
As shown in Table 4, FHA insured nearly 800,000 new single-family purchase and refinance
mortgages in FY2014. Together, these mortgages had an initial loan balance of $135 billion. Of
the 800,000 single-family mortgages that FHA insured in FY2014, nearly 600,000 (75%) were for
home purchases, while nearly 200,000 (25%) were for refinancing an existing mortgage.49 The
overall number of mortgages insured by FHA in FY2014 represented a decrease of 40% over
FY2013, when FHA insured over 1.3 million mortgages. The number of mortgages insured by
FHA increased beginning in FY2008, reaching a peak of 1.8 million mortgages in FY2009.
FY2014 is the first year since FY2007 that FHA insured fewer than a million mortgages.
Many FHA-insured mortgages are obtained by first-time homebuyers, lower-and moderate-
income homebuyers, and minority homebuyers. Of the home purchase mortgages insured by FHA
in FY2014, about 81% were made to first-time homebuyers.50 About 32% of mortgages insured
by FHA in FY2014 were made to minority borrowers, and about 58% were made to low- or
moderate-income borrowers.51 Furthermore, in 2013, FHA-insured loans accounted for about
46% of home purchase mortgages obtained by black households and 48% of home purchase
mortgages obtained by Hispanic households.52
Table 4. Number of New Mortgages Insured by FHA in FY2014
Purchase
Refinance
Total
Number of Mortgages
594,997
191,356
786,353
Source: FHA’s FY2014 Annual Report to Congress on the Financial Status of the MMI Fund, p. 66.
Notes: These data do not include FHA-insured reverse mortgages. Numbers reflect FHA’s activity during
FY2014. FHA activity can also be reported for a calendar year rather than a fiscal year; the market share data
included in the Appendix reflect FHA activity during calendar years rather than fiscal years.
As shown in Table 5, at the end of FY2014 FHA was insuring a total of about 7.8 million single-
family loans that together have an outstanding balance of about $1.1 trillion.53 Since it was first
established in 1934, FHA has insured a total of over 40 million home loans.54

49 U.S. Department of Housing and Urban Development, Fiscal Year 2014 Annual Report to Congress on the Financial
Status of the FHA Mutual Mortgage Insurance Fund, November 17, 2014, p. 11.
50 Ibid., p. 18.
51 U.S. Department of Housing and Urban Development, FHA Annual Management Report Fiscal Year 2014,
November 17, 2014, p. 14. The percentage of FHA-insured loans made to minority borrowers is based on all FHA-
insured forward mortgages (both purchases and refinances) for the fiscal year; the percentage of FHA-insured loans
made to low- and moderate-income borrowers is based on all FHA loans that were fully underwritten (that is, it
excludes certain loans such as streamline refinances).
52 U.S. Department of Housing and Urban Development, Annual Report to Congress Fiscal Year 2014 Financial Status
FHA Mutual Mortgage Insurance Fund, November 17, 2014, pp. 18-19. Figures are based on data reported under the
Home Mortgage Disclosure Act (HMDA).
53 U.S. Department of Housing and Urban Development, FHA Production Report, September 2014,
http://portal.hud.gov/hudportal/documents/huddoc?id=fhaproductionrptsep2014.pdf. These totals do not include Home
Equity Conversion Mortgages (HECMs), which are reverse mortgages insured by FHA.
54 FHA Annual Management Report Fiscal Year 2014, p. 5.
Congressional Research Service
14

---

FHA-Insured Home Loans: An Overview

Table 5. Number and Dollar Volume of Outstanding FHA-Insured Mortgages
in FY2014
Total
Number of Mortgages
7,787,092
Dollar Volume of Mortgages ($ in millions)
$1,083,510
Source: FHA Production Report, September 2014.
Notes: Figures show the number and dol ar volume of single-family insurance-in-force as of the end of FY2014,
excluding Home Equity Conversion Mortgages.
Market Share
Measuring Market Share
FHA’s share of the mortgage market is the amount of mortgages that are insured by FHA
compared to the total amount of mortgages originated or outstanding in a given time period.
FHA’s market share can be measured in a number of different ways. Therefore, when evaluating
FHA’s market share, it is important to recognize which of several different figures is being
reported.
First, FHA’s share of the mortgage market can be computed as the number of FHA-insured
mortgages divided by the total number of mortgages, or as the dollar volume of FHA-insured
mortgages divided by the total dollar volume of mortgages.
Furthermore, FHA’s market share is sometimes reported as a share of all mortgages, and
sometimes only as a share of home purchase mortgages (as opposed to both mortgages made to
purchase a home and mortgages made to refinance an existing mortgage).
A market share figure can be reported as a share of all mortgages originated within a specific time
period, such as a given year, or as a share of all mortgages outstanding at a point in time,
regardless of when they were originated.
Finally, FHA’s market share is sometimes also reported as a share of the total number of
mortgages that have some kind of mortgage insurance (including mortgages with private
mortgage insurance and mortgages insured by another government agency) rather than as a share
of all mortgages regardless of whether or not they have mortgage insurance.
FHA’s Share of the Mortgage Market Since 2001
In the early 2000s, FHA-insured mortgages generally made up between 10% and 15% of the
home-purchase mortgage market, and between 5% and 10% of the overall mortgage market (both
home purchase mortgages and refinance mortgages), as measured by number of mortgages.
However, by 2005 FHA’s market share had fallen to less than 5% of home-purchase mortgages
and about 3% of the overall mortgage market. Subsequently, as economic conditions worsened
and mortgage credit tightened, FHA’s market share rose sharply, peaking at over 30% of home-
purchase mortgages in 2009 and 2010, and over 20% of all mortgages (including both home
purchases and refinances) in 2009. In 2013, FHA insured about 22% of new home purchase
mortgages and about 14% of new mortgages overall.
Congressional Research Service
15

---

FHA-Insured Home Loans: An Overview

Figure 1 shows FHA’s market share as a percentage of the total number of new mortgages
originated for each calendar year between 2001 and 2013. As described, FHA’s market share can
be measured in a number of different ways. The figure shows FHA’s share of (1) all newly
originated mortgages, (2) just newly originated purchase mortgages, and (3) just newly originated
refinance mortgages. FHA’s share of home purchase mortgages tends to be the highest, largely
because borrowers who refinance are more likely to have built up a greater amount of equity in
their homes and, therefore, might be more likely to obtain conventional mortgages. For the
number of mortgages insured by FHA in each year calendar since 2001, see the Appendix.
Figure 1.FHA’s Share of the Mortgage Market, 2001-2013
Percentage of total number of mortgages originated in each year

Source: HUD’s FHA Single-Family Mortgage Market Share Report, 2014 Q2, available at http://portal.hud.gov/
hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/fhamktsh/fhamktqtrly.
The increase in FHA’s market share since 2007 is due to a variety of factors related to housing
market turmoil and broader economic instability. One factor is that economic conditions led many
banks to limit their lending activities, including lending for mortgages. Similarly, private
mortgage insurance companies, facing steep losses from past mortgages, began tightening the
underwriting criteria for mortgages that they would insure.55 Another factor is the increase in the
maximum mortgage amounts that FHA can insure, enacted by Congress in 2008, which may have
made FHA-insured mortgages a more viable option for some borrowers in certain areas.
More recently, a number of factors may be contributing to a somewhat lower market share for
FHA, including lower loan limits in some high-cost areas, higher mortgage insurance premiums,
and greater availability of non-FHA-insured mortgages. Nonetheless, FHA’s market share
remains high by historical standards. While not the focus of this report, FHA’s market share has
been a subject of ongoing debate among policymakers. It is likely to continue to be a topic of
debate, both in the context of policies specifically related to FHA as well as part of the broader
debate about the future of the U.S. housing finance system.

55 For example, see Robert B. Avery, Neil Bhutta, Kenneth P. Brevoort, and Glenn B. Canner, The 2009 HMDA Data:
The Mortgage Market in a Time of Low Interest Rates and Economic Distress, http://www.federalreserve.gov/pubs/
bulletin/2010/articles/2009HMDA/default.htm. See also Radian’s 2010 annual report, at http://www.radian.biz/sfc/
servlet.shepherd/version/download/068C0000000SKI1IAO. Page 79 includes a discussion of Radian, a private
mortgage insurer, tightening its underwriting standards.
Congressional Research Service
16

---

FHA-Insured Home Loans: An Overview

Appendix. FHA’s Market Share Since 2001
Table A-1 provides data on the number of mortgages insured by FHA in each calendar year since
2001, along with FHA’s overall market share in each fiscal year.
Table A-1. FHA-Insured Mortgage Origination Activity
CY2001-CY2013
FHA-Insured
Home
FHA-Insured
Total FHA-
Total
FHA Share of
Purchase
Refinance
Insured
Mortgage
Mortgage
Calendar Year
Mortgages
Mortgages
Mortgages
Market
Originations
2001 870,000
407,000
1,277,000
11,627,000
11.0%
2002 764,000
412,000
1,176,000
16,922,000 7.0%
2003 630,000
653,000
1,283,000
24,887,000 5.2%
2004 467,000
248,000
716,000
14,319,000 5.0%
2005 323,000
133,000
456,000
14,485,000 3.1%
2006 295,000
116,000
411,000
12,330,000 3.3%
2007 317,000
211,000
528,000
10,294,000 5.1%
2008 845,000
561,000
1,406,000
7,092,000 19.8%
2009 1,088,000
897,000
1,985,000
9,391,000 21.1%
2010 944,000
519,000
1,463,000
8,359,000 17.5%
2011 760,000
322,000
1,082,000
7,626,000 14.2%
2012 738,000
559,000
1,297,000
9,484,000 13.7%
2013 664,000
507,000
1,171,000
8,155,000 14.4%
Source: U.S. Department of Housing and Urban Development, FHA Single-Family Market Share 2014 Q2,
http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/oe/rpts/fhamktsh/fhamktqtrly.
Notes: This table reflects FHA activity during calendar years. Data can also be reported for fiscal years; the FHA
program activity data reported in Table 4 in this report reflect activity during fiscal years rather than calendar
years.

Congressional Research Service
17

---

FHA-Insured Home Loans: An Overview

Author Contact Information

Katie Jones

Analyst in Housing Policy
kmjones@crs.loc.gov, 7-4162

Acknowledgments
Bruce E. Foote, retired CRS Analyst in Housing Policy, was the original author of an earlier version of this
report.

Congressional Research Service
18

---