HUD Articles

HOW FHA Was Created

By Tom Nelson-HUD LLB

Real Estate One Rochester, MI

Most everyone knows about the stock market crash on Black Monday October 28, 1929 that precipitated the Great Depression.  But what many people are unaware of is that this was preceded by the housing market crash of 1928.  Prices of homes were skyrocketing in the late 1920s, but some people became unable to pay their mortgage in late 1929, although prices continued to climb until the third quarter of 1929.  Then the home prices declined dramatically.

Prior to 1930 the standard down payment for a home was 50%-that is half the purchase price.  Although the bank could decide         to loan money on less that a 50% down payment.  In those days it was often a practice of bankers to decide to loan money to someone based on their character without collateral.  But most often a 50% down payment was required.

By 1932 there were so many foreclosed homes that in Royal oak, Michigan one could buy a 3-bedroom home for five dollars.  The house values remained depressed for the next decade.  For example, a typical home purchased in 1920 would only have 56% of its value twenty years later in 1940.

By 1934 two million construction workers were out of work.  The housing industry had all but vanished.  To remedy this the United States Congress passed the National Housing Act on June 27, 1934.  This was the creation of FHA-federal Housing Administration.  The purpose was to allow first time home buyers to buy homes.  It guaranteed that the loans to home buyers would be secured by the US Government.

In 1965 the Department Of Housing And Urban Development (HUD) was created; moved to executive cabinet level under the president of the United States.  At that time FHA became under the umbrella of HUD.  Which oversees FHA to this day.