What is the National Housing Act?

Congress passed the National Housing Act in 1934 to strengthen the housing market and encourage homeownership. The legislation created the Federal Housing Administration (FHA), which allowed banks to lend at lower costs and extended loans to more individuals by introducing a federally guaranteed mortgage insurance system.

State Housing Law: An Overview

In the 1930s, the Roosevelt administration enacted a series of new laws and Congress approved a series of new laws that strengthened the federal government's ability to influence the American economy and quality of life. The National Housing Act is one of the most important and longest-running legislation ever enacted. Their main goals are to improve housing standards and the environment, provide a system of collective mortgage insurance, and prevent family home foreclosures.

During the Great Depression, the housing market desperately needed help. The number of foreclosures has risen alarmingly. In 1932, as many as 1,000 homeowners defaulted on their mortgages every day, and by 1933, more than half of all home loans in the United States were in default.

Home financing is often out of reach for the average American due to onerous credit conditions requiring a 50% down payment and full repayment after five years. The loan also has no amortization schedule. They are essentially balloon mortgages.

The law created two important agencies: the Federal Savings and Loan Insurance Company (FSLIC), which guarantees the deposits of savings and loan account holders (later acquired by the FDIC), and the FHA, the mortgage lender (banks and Lenders) insure other financial institutions) for a small fee to cover the risk of default by the borrower. When the borrower defaults, the FHA pays the lender a fixed amount of the receivable. There are certain requirements a lender must meet to qualify as a lender" has become a bank's badge of honor.

Impact of state housing laws

The rationale for the program is that by providing insurance to lenders, more people will be eligible to take out a mortgage and buy a home. It was a success. Mortgage lenders offered softer terms after learning that the government would insure their loans. The Federal Housing Administration then stabilized and restored the national housing market and expanded housing financing to Americans who were previously unable to buy a home.

Unlike many other New Deal programs, Congress recognized the need for the FHA even after the worst of the Great Depression had passed, and the Federal Housing Administration merged into the Department of Housing and Urban Development (HUD) in 1965.

Criticism of the National Housing Act

While the FHA has been a boon for many Americans, it has left many others behind, especially African Americans and other minorities.

The FHA focused its financial insurance work in the 1930s, 1940s and 1950s on building new towns and suburbs outside the country's metropolitan areas, while denying credit to people who wanted to buy homes in certain areas. In effect, the FHA classifies certain communities as "at risk" -- largely because of their racial composition -- and refuses to guarantee federal mortgages in those areas. Because politicians and bankers draw a red line on a map around a community, but they won't fund it for demographic reasons, the process is called a red line.