A BRIEF HISTORY OF THE HOUSING AND URBAN DEVELOPMENT (HUD)
The Department Of Housing and Urban Development (HUD) was originally called the Federal Housing Administration (FHA). The FHA was established in 1934.One of the objectives of the FHA was to make home mortgages a more desirable investment for lenders. The way the FHA accomplished this was to "insure" the mortgage loans that were made by FHA-approved lenders on homes that met the standards set by FHA. The program does not actually lend the money to the borrower to purchase the home. It backs, or guarantees, the mortgage loan which is funded by a lending institution. In the event that the homeowner does not repay the mortgage, FHA will pay off the loan, then repossess the home and attempt to resell it. In 1965 Congress changed the name of the Federal Housing Administration to Housing and Urban Development (HUD).
Where the Money Comes From
The Federal Housing Administration is part of the U.S. Department of Housing and Urban Development. The FHA has a mortgage insurance program that makes housing available to individuals of any income bracket, with or without military service. With FHA backing the mortgage loan, the home buyer can purchase a home with as little as 3% to 5% down. At the present time FHA will guarantee a home purchase up to $100,000 for a single family residence.
The FHA does not actually lend the money to purchase the home. The FHA stands behind the mortgage loan, in the event the homeowner does not repay the mortgage, FHA will repossess the home and sell it to recover the loss.
Why The Money is Available
The way the program works is simple, in addition to the price of the home, each home buyer contributes a small amount of money to a pool. Each borrower of HUD/FHA pays 1/2 percent of the loan amount or 1/2 point. Example, on a $50,000.00 loan the amount would be $250.00. On a $100,000 loan the amount would be $500.00.
This pool can be considered a kind of insurance premium. The 1/2 percent goes into the FHA/HUD shared distribution section which covers any losses due to foreclosures of any FHA/HUD backed loans, and a few other expenses. In case of foreclosure, the borrower forfeits any refund due to them. However, in the case of a good loan, the money then sits drawing no interest until the loan is paid off and the borrower is contacted for a refund.