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Fha and Fannie Mae Charles E. Daye The Federal Housing Administration (FHA), created in the Housing Act of 1934, insures mortgages that banks offer to qualified borrowers who cannot afford to make large down payments ordinarily required by the bank. Insurance protects the bank against loss if the buyer defaults (that is, fails to make the mortgage payments). The Federal National Mortgage Association (Fannie Mae) was originally a government-chartered corporation created in 1938 to assist housing lenders by buying mortgages from or selling mortgages to them. In 1954 Fannie Mae's ownership changed when private stockholders became part owners. |
The Housing and Urban Development Act of 1965 (P.L. 89-117, 79 Stat. 451) was the most ambitious federal housing effort undertaken since the Housing Act of 1949. The 1965 act extended the urban renewal programs set in motion by the 1949 act, which provided various forms of federal assistance to cities for removing dilapidated housing and redeveloping parts of downtowns. The act also extended the code enforcement program, which required that cities enact a code specifying minimum standards for housing before they could participate in the urban renewal program. In addition, the act initiated or extended Federal Housing Administration mortgage-insurance programs, which enabled more American families to purchase a home. The basis for the act is Congress's taxing and spending power as stated in the U.S. Constitution, article I, section 8, which authorizes the legislature to provide for the general welfare.
The most controversial and innovative part of the act, however, created a rent-supplement program. Under this program, qualified tenants paid 25 percent of their income in rent, and the program paid the balance directly to the housing provider. The supplement ceased when the occupant was able to pay the full rent. To qualify, a person's income had to be within the limits set for eligibility for public housing, and the person had to be either elderly, physically handicapped, displaced by a public-improvement program, living in substandard housing, or occupying housing damaged by a natural disaster. Only private, nonprofit (or, in some cases, limited-profit) corporations were eligible housing sponsors.
In 1973 President Nixon halted funding for the rent-supplement program. Ultimately, it was replaced by other federal programs, including those known as the section 8 programs. These programs were enacted by the Housing and Community Development Act of 1974 to assist tenants living in privatelyowned housing in paying their rent.
Pros and Cons
President Franklin Roosevelt's New Deal legislation and the Housing Act of 1949 reflected the view that the federal government had a responsibility to help provide for decent housing. After Congress adopted these programs, housing advocates and social reformers demanded more attractive, well-planned cities and better housing for individuals of limited means. President Lyndon B. Johnson submitted a bill to Congress in March 1965 proposing the rent-supplement program as part of his Great Society program. In his message on housing accompanying the bill transmitted to congress, President Johnson argued that "the most crucial new instrument in our effort to improve the American city is the rent supplement." He proposed the program to assist low- and moderate-income renters whose incomes were above the initial limits set for those who sought public housing.
The legislative debate on the bill centered on the rent-supplement proposal, with specific attention to income limitations. Opponents argued that rent supplements would take away renters' incentives to seek homeownership, impose extraordinary costs on government, and encourage socialism. To gain enough votes for passage of the bill, President Johnson accepted the restriction of supplements to individuals who qualified for public housing.
Experience and Relationship With Other Laws
In 1965 the Department of Housing and Urban Development (HUD) was established to consolidate federal agencies that dealt with urban housing. These agencies included the Public Housing Administration, the Federal Housing Administration (which operates extensive mortgage-insurance programs), and the Federal National Mortgage Association (popularly known as "Fannie Mae," which buys and sells bank mortgages). The Housing and Urban Development Act of 1968 continued the shift of federal subsidies away from publicly owned housing toward private housing. The Housing and Community Development Act of 1974 enacted the section 8 program that replaced the rent-supplement program.
Bibliography
Bratt, Rachel G. Rebuilding a Low-Income Housing Policy. Philadelphia: Temple University Press, 1989.
Keith, Nathaniel S. Politics of the Housing Crisis Since 1930. New York: Universe Books, 1973.
Wilson, James Q., ed. Urban Renewal: The Record and the Controversy. Cambridge, MA: MIT Press, 1966.
