(RECAP: The purpose of the FHA is “to help creditworthy low income and first time homebuyers, individuals and families often denied traditional credit, to obtain a mortgage and purchase a home.” This is achieved through the FHA guarantee provided to lenders who originate FHA backed loans, which provides the FHA will pay out the balance of a mortgage loan in the event of an uncured default. This significantly lowers and practically eliminates the risk of FHA loans to the lender, which then allows them to offer higher loan-to-value ratios and more attractive interest rates to borrowers who would normally not have access to similar terms. This system was successful and aided in achieving the FHA’s goals of promoting home ownership, however this is changing as the DOJ has begun to bring investigations and actions against lenders under the False Claims Act.)
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