FHA. A government agency whose primary purpose is to insure residential mortgage loans, as well as to improve housing conditions. The FHA was created by the National Housing Act of 1934, after the Great Depression caused many homes to be foreclosed. The FHA currently operates as part of the Department of Housing and Urban Development, and is fully self-funded. Following the financial crisis of the 2000s, the number of FHA mortgages skyrocketed, jumping from 2% to over 33% of all mortgages. FHA mortgages are more flexible than other loans, which benefits borrowers, and are appealing to lenders as well because there is less risk due to the insurance provided by the FHA.