American Institute of Certified Planners (AICP) Practice Exam

What did the creation of the FHA in 1934 primarily address?

1. Reduction of urban sprawl

2. Insurance of home mortgages

3. Funding for public transportation

4. Housing for low-income families

The correct answer is: Insurance of home mortgages

The creation of the Federal Housing Administration (FHA) in 1934 primarily addressed the insurance of home mortgages. Established during the Great Depression, the FHA was designed to stimulate the housing market and increase homeownership by providing federal insurance on mortgage loans. This insurance reassured lenders that they would be compensated for losses if the borrower defaulted, which encouraged banks to offer loans to more individuals, including those who might not qualify under traditional lending practices. This program was crucial in making home financing accessible to a broader segment of the American population, resulting in increased home construction, job creation in related industries, and overall economic stability. While the FHA did play a role in facilitating housing programs for low-income families and other initiatives that contributed to urban development, its primary function centered around mortgage insurance. This foundational role helped reshape the landscape of American housing finance in a way that influenced the market for decades to come.