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THE ORIGINAL SPIRIT,
HISTORY AND INTENT
BEHIND THE FHA LOAN PROGRAM
The FHA loan program had
it's start in the early 1930's during the
economic collapse of the Great Depression. At
that time financing the purchase of a home was
a very different picture than it is today and
far fewer Americans, less than 40 percent,
owned homes. Typically banks required down
payments of anywhere from 30 to 50% and often
on much shorter terms, 5 to 10 years with a
balloon payment of the the remaining mortgage
balance at the end of the term. Most
people when their balloon payment came due
would refinance their mortgage and continuing
refinancing every 5 or 10 years until their
balance was paid off. When the banking system
collapsed during the Great Depression, many
homeowners went into foreclosure because banks
would no longer lend them the money to
refinance their old mortgages. Disaster and
complete ruin of the banking system was the
result. In order to bring the system back to
its feet, the Federal government decided to
start a program that would insure banks
agaisnt any losses on their mortgages, extend
loan terms and allow buyers to purchase homes
with much lower down payments. More
homeownership would help create more jobs from
new construction and help kickstart the
economy to get it out of depression. The
result was the birth of the FHA loan program
(along with its sister program, VA), which for
a very long time continued to be the primary
source for the purchase of new homes.
When World War II ended their was an explosion
of homebuilding across America and FHA and VA
loans helped fuel it. Millions of people from
all walks of life may not have been able to
afford homes otherwise.
During the 1970's the
secondary mortgage market emerged (banks
selling loans to one another and institutions
such as pension funds and insurance companies)
which made more conventional money available
for homeowners. Fannie Mae and Freddie
Mac were quasi governmental companies set up
to buy mortgages from banks. Private mortgage
insurance was invented which allowed people to
put smaller down payments on homes because
banks were covered from losses by private
companies who would insure the bank agaisnt
losses should a borrower default. These
advances led to greater pools of money that
could be lent and many people began to rely
less on FHA mortgages. FHA still however
remained important to people with less than
perfect credit because the alternatives from
conventional banks still had much higher
rates. FHA continued to help many city
neighborhoods from going into decline because
it allowed people who may not otherwise be
able to get into homes with very small down
payments and allowed seller's to pay some of
the closing costs (which many conventional
loan programs still do not allow). More
homeowners in a community benefits everyone
who lives in it (businesses, schools, etc) and
gives stability to their lives.
The New York Mortgage
Company is committed to the original spirit of
the FHA program, to promote home ownership as
widely as possible. We won't charge excessive
points or junk fees and will do our best to
make sure your loan goes as smoothly as is
possible. This isn't just a sales pitch. We're
committed to raising the bar when it comes to
FHA lending. Today's media is filled with
stories of predatory lenders who take
advantage of borrower's with less than perfect
credit. At NYMC we treat out borrower's fairly
and with a great deal of respect. We will
continue to try to be a helping hand whenever
possible.
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