National Housing Act

The National Housing Act was a law passed by Congress and signed by the president in 1934 that established the Federal Housing Administration (FHA). The law was passed as part of President Roosevelt’s New Deal program, aimed at stimulating the economy out of the Great Depression.

The National Housing Act was one of the most important and lasting pieces of legislation to be signed into law during the Great Depression, when the Franklin Roosevelt Administration and Congress passed a series of new laws that expanded the power of the federal government to manage and stabilize the American economy. The law formed the Federal Housing Administration, which was empowered to establish a federally-guaranteed mortgage insurance program, which insured mortgage lenders against the threat of default, in return for a small fee.

The housing market was in dire need of intervention during the Great Depression. In 1932, as many as one thousand homeowners defaulted on their mortgages every day, and by 1933, fully half of all mortgages in America were in arrears. Mortgage finance in general was not available to the typical American, as loan terms were onerous, with the typical mortgage requiring 50% down, to be repaid after five years. Once mortgage lenders had access to federally-backed insurance, it enabled them to offer more generous terms, like requiring just 20% down and repayment terms of twenty or thirty years.

The Federal Housing Administration was successful at stabilizing national housing markets and extending housing credit to Americans for whom homeownership was out of reach. Unlike many other New Deal programs, lawmakers in Washington saw a purpose for the FHA even after the worst effects of the Great Depression had dissipated, and in 1965, the Federal Housing Administration was incorporated into the newly formed Department of Housing and Urban Development. The FHA remains an important part of the U.S. housing finance system, providing mortgage insurance and subsidies to thousands of low and middle-income Americans each year. 

While the creation of the Federal Housing Administration was a boon to many Americans, it also left out many Americans, particularly African Americans and other people of color. The FHA focused its credit creation efforts on new communities and suburbs being built on the edges of Americans urban cores, while also refusing to lend to homeowners wishing to buy homes in neighborhoods dominated by people of color. Though this was sometimes justified on the grounds that investing in homes in these neighborhoods is risky, this policy of red-lining unfairly locked millions of American out of homeownership, and is significant reason for wealth disparities between races that exist today.