FHA: 60 Years of Mission Failure

In "Recent Attacks on FHA Are Wrongheaded" (Dec. 19), John Griffith of the Center for American Progress blindly repeats the FHA’s idealized and sanitized version of its history.  

This hagiography ignores 60 years of wrongheaded policies perpetuating mission failure—the selling the American dream of homeownership, but delivering despair. 

In 1992 former HUD attorney and senior analyst Irving Welfeld summed up the Federal Housing Administration’s history when he wrote in his book HUD Scandals: "Mention the Department of Housing and Urban Development and the word scandal comes to mind." He is in good company. Outlined below are a few examples of reporters, authors, and commentators across the political spectrum who have pointed out how the FHA’s poorly designed underwriting policies have resulted in financing failure for working-class families and a plague of foreclosures for working-class communities.

In 1954, as documented by Welfeld, FHA was targeted by the FBI for involvement in fraudulent home improvement schemes.

In 1962 the FHA’s mounting foreclosures were noted by Time magazine when it observed "Homeowners of a new and unattractive breed are plaguing the Federal Housing Administration these days. Known as ‘the walkaways,'they are people who find themselves unable to meet their mortgage payments—and to solve the problem simply move out their belongings at night, drop their house key in the mailbox and disappear. … Because it underwrites low-cost housing for high-risk groups, the FHA’s problems are particularly acute."

In 1973 Brian D. Boyer chronicled "how the FHA Scandal worked on a day-to-day basis [to destroy whole neighborhoods] in the big cities of the United States" in Cities Destroyed for Cash: The FHA Scandal at HUD.

In 1986 The New York Times noted the similarities of yet another round of FHA scandals to the horrors experienced during the 1960s and 1970s in Brooklyn and other cities: "That scandal – as with others at the time that affected such cities as Newark, Philadelphia and Detroit – was remarkably similar to a pattern of fraud that Federal investigators said last month that they had found in several cities, including Camden, N.J.; Houston, Seattle and Milwaukee. … The results have been huge numbers of defaults."

In 1998, the late Gale Cincotta, a long-time community activist, in testimony before a subcommittee of the House Financial Services Committee, told the subcommittee that FHA had not changed its abusive lending practices: "We have been fighting abuse, fraud, and neglect of the FHA program that has destroyed too many neighborhoods and too many families'dreams of homeownership for more than 25 years. . . . The FHA program has a national default rate 3 to 4 times the conventional market, and in many urban neighborhoods it routinely exceeds 10 times. In addition, the FHA program is hemorrhaging money."

In 2009 Beryl Satter observed in the NAACP’s The Defenders Online "The 1970s FHA-HUD Scandal… bore well over the lion’s share of responsibility for the decayed buildings and vacant lots that scar urban minority communities."

In 2012, I reviewed some 2.4 million loans to better understand the effect of FHA policies in specific ZIP codes across America. This groundbreaking level of granularity revealed the concentrated pain agency policies are causing in working-class communities. The results were recently published along with an associated web project entitled "How the FHA Hurts Working Class-Neighborhoods and Communities."