A number of laws were passed during the American Great Depression in order to help the economy recover. One of these pieces of legislation, the National Housing Act, was passed in 1934. The act was created to help the American people afford housing and home mortgages.
Two organizations were created in conjunction with the National Housing Act. The Federal Housing Administration, or FHA, is responsible for making sure that homes are in safe condition. It is designed to help maintain a livable standard of housing for the American people. The FHA also manages a home financing system by insuring mortgage loans to ensure fairness in the market. Another job the FHA has is making certain that the mortgage market remains stable.
The other group that stemmed from the National Housing Act is the Federal Savings and Loan Insurance Corporation. This company was created to prevent banks from unfairly foreclosing on American homes. While intended to help people attain and maintain property, initially these groups did little to address inner city housing or suburban sprawl. The FHA joined with the Department of Housing and Urban Development, or HUD, in 1965.
When the American banking system failed during the Great Depression, one side effect a dramatic decline in the number of people who could either own a home or obtain a home loan. Regulation was cursory, with very short mortgage terms and no refinancing options.
Coupled with the bank failures, lenders collected all of their mortgages in an attempt to recover. These conditions, in addition to the high rate of joblessness, resulted in families being unable to maintain their payments, often becoming homeless. The housing market was then severely damaged. Banks and lenders who retrieved their due mortgages did not recover, either, as most property values were very low.
These conditions continued, with very few loans approved, and few homes purchased, until the government intervened in 1934. The National Housing Act allowed the government to restructure the federal banking system. Interest rates were managed, mortgage terms were set and insured, and people were once again able to purchase new homes. This also resulted in an increase in the market's size and an eventual recovery across the nation.
Per the National Housing Act, more Americans may be able to obtain affordable housing. In order to receive an FHA mortgage loan, certain criteria must be met. Applicants must have a steady employment history, good standing credit, and a steady increase in income over the past two years employed. Mortgages may be granted with payments making up thirty percent or less of the buyer's total monthly income.