What’s the Difference Between HUD and the FHA?
HUD and the FHA were founded separately but have significant overlap. Find out the difference between the two organizations.
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HUD vs. the FHA: What You Need to Know
Although HUD and the FHA, or Federal Housing Administration, were founded separately, they share many things. For example, HUD oversees residential and multifamily insurance programs. In contrast, the FHA primarily deals with residential lending for primary residences.
What Is HUD?
HUD, or the U.S. Department of Housing and Urban Development, was created as a cabinet-level agency in 1965 as a result of President Lyndon Johnson’s Great Society program. When HUD was created, the FHA became a part of it.
In addition to providing mortgage insurance (along with the FHA), HUD also operates programs like the HUD Section 8 programs, which provides subsidies for apartment and multifamily investors who agree to cap their rents at a certain percentage of a location’s area median income (AMI), a statistic created by HUD. Area median income also impacts the Low-Income Housing Tax Credit (LIHTC) program, in which investors and developers can take advantage of a 10-year income tax credit if they agree to cap a certain number of units at a certain percentage of the AMI.
What Is the FHA?
The FHA, or Federal Housing Administration, was created by the Federal Housing Act of 1934 in order to encourage home ownership and increase the supply of housing in the United States. In the decades before the FHA was created, the vast majority of home mortgages were balloon loans and had LTVs of 60% or less. Refinancing options were not widely available, and the market crash of 1929 led many Americans to face foreclosure. In 1935, the FHA began issuing mortgage insurance to apartment buildings, including those intended for veterans. After the housing crisis of 2007-2010, the FHA became one of the largest insurers of home financing in the U.S., as privately insured mortgages became increasingly difficult to find for homeowners.
Also, although the FHA (which became a part of HUD in 1965) focuses on residential properties, it handles the overall management of HUD’s Multifamily Housing Programs. Yet, in the end, HUD ultimately provides the insurance for FHA multifamily loan programs like the HUD 221(d)(4) for multifamily construction and substantial rehabilitation, the HUD 223(f) program for multifamily acquisitions and refinancing, and the HUD 232 and HUD 232/223(f) programs for the construction, substantial rehabilitation, acquisition and refinancing of senior living and healthcare properties.
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