Editing Federal Housing Administration (section)

== Subprime mortgage crisis ==
{{Main article|Subprime mortgage crisis}}

In the late 1990s, a new category of mortgage products known as [[Subprime mortgage|subprime mortgages]] emerged and began to compete with the traditional mortgages that were financed by the FHA. These subprime products were often poorly underwritten, if they were underwritten at all, and offered higher profits for lenders. Consequently, lenders had a strong incentive to steer borrowers towards these subprime products, even when these borrowers qualified for FHA loans, which were considered safer.

As the subprime mortgage market experienced significant growth, the FHA's share of the mortgage market declined. For instance, in 2001, FHA-insured loans accounted for 14% of home-purchase mortgages. However, by 2005, this percentage had dropped to less than 3%. The surge in these unregulated subprime loans played a role in inflating the [[United States housing bubble]], which ultimatelfy led to the [[subprime mortgage crisis]] and nearly caused the collapse of the housing market.<ref name=":2">{{Cite web |last=Griffith |first=John |date=October 11, 2012 |title=The Federal Housing Administration saved the Housing Market. |url=https://www.americanprogress.org/article/the-federal-housing-administration-saved-the-housing-market/ |access-date=March 3, 2022 |website=americanprogress.orh}}</ref> Following the [[subprime mortgage crisis]], The FHA, in conjunction with [[Fannie Mae]] and [[Freddie Mac]], emerged as a substantial provider of mortgage financing in the United States. Notably, the proportion of home purchases funded through FHA mortgages saw a substantial increase, rising from a mere 2 percent to over one-third of all mortgages in the United States. This growth was in response to a contraction in conventional mortgage lending during a [[credit crunch]] period. By the year 2011, the FHA was responsible for backing approximately 40% of all home purchase loans in America. Since the year 2008, the FHA has supported more than 4 million loans and facilitated mortgage refinancing for 2.6 million families, resulting in reduced monthly payments.<ref name=":2"/> With the collapse of the private subprime market, many of the riskiest buyers borrowed from the FHA instead, exposing the FHA to substantial potential losses. At the time, these possible losses were estimate as up to $100&nbsp;billion.<ref>Joshua Zumbru, Maurna Desmond. [https://www.forbes.com/2008/08/25/fha-housing-mortgages-biz-beltway-cx_jz_md_0826housing.html "Lending Over Backward"], ''[[Forbes]]'', August 25, 2008.</ref><ref>[https://www.washingtonpost.com/wp-dyn/content/story/2009/03/07/ST2009030702455.html "The Next Hit: Quick Defaults"], ''Washington Post'', March 7, 2009.</ref> The troubled loans weighed heavily on the FHA's capital reserve fund, which by early 2012 had fallen below its congressionally mandated minimum of 2%, in contrast to more than 6% two years earlier. By November 2012, the FHA was essentially bankrupt.<ref>{{cite news |url=https://www.nytimes.com/2012/11/17/business/audit-shows-housing-agency-facing-shortfall.html |title=F.H.A. Hopes to Avoid a Bailout by Treasury |date=November 16, 2012 |newspaper=New York Times}}</ref><ref>{{cite news |url=https://www.nytimes.com/2012/11/15/business/fha-expected-to-report-declining-finances.html |title=F.H.A. Audit Said to Show Low Reserves |newspaper=New York Times |date=November 14, 2012}}</ref><ref>{{cite web |url=http://www.aei.org/outlook/economics/financial-services/housing-finance/bet-the-house-why-the-fha-is-going-for-broke/ |title=Bet the house: why the FHA is going (for) broke |date=January 19, 2012 |publisher=American Enterprise Institute}}</ref>