The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Develpment (HUD), provides federal mortgage insurance which insures that mortgage lenders will be reimbursed in the event homebuyers default on the mortgage.
When a lender is forced to foreclose on an FHA-insured single family home, townhome or condo because the owner can no longer make the payments, the lender can file a claim with FHA for the balance due on the mortgage and convey title of the property to HUD. A HUD home is, therefore, is a one-to-four unit residence acquired as a result of a foreclosure on an FHA-insured mortgage.
