FHA Changes

Well, there is one good sign on the horizon. The FHA is now buying up subprime mortgages and converting them to 30-year fixed for those that qualify. Hopefully this will slow the bleeding of the housing market a bit. An article at Bloomberg titled FHA Takes on Subprime, Alt-A Loans Shunned by Private Lenders outlines the changes. Lets take a look -

The Federal Housing Administration has grown so large that by the end of the year it will guarantee mortgages for three in 10 U.S. borrowers, many of whom have bad credit or loans that required no verification of income.

Congress wants FHA to do more. The Hope for Homeowners program, unveiled Oct. 1, authorizes the agency, part of the cabinet-level Department of Housing and Urban Development, to guarantee up to $300 billion of 30-year, fixed rate home loans for struggling borrowers over the next three years. The Congressional Budget Office estimates that 400,000 households will get FHA- insured loans and about one-third of those will fall behind again on their new loans.

Hope for Homeowners is one way the U.S. government is trying to prevent further losses in the worst housing decline since the Great Depression of the 1930s. The rewritten mortgages may not be enough to stem rising defaults, said David Olson, a 40-year veteran of the U.S. mortgage industry.

...

Expanding the FHA's portfolio to include ``problematic, high- risk loans'' could turn the agency into ``a less stable, less solvent, more bureaucratic entity,'' [FHA Commissioner Brian] Montgomery said.

The FHA ``is not designed to become the federal lender of last resort,'' he said.

The big question with this is if it just really pushing the problem further down the road. Giving a huge new authority to an agency it was not designed to handle could have huge consequences.