New FHA mortgage options extend relief to cash-poor buyers

As home foreclosures accumulate in what looks to become a year-long crisis, Congress is poised to enact a government mortgage alternative.

The pending FHA Modernization Act intends to help low-income borrowers who've been stuck in the commercial subprime market with exorbitant adjustable interest rates they can't sustain.

The Federal Home Administration would be allowed to grant mortgages up to 100 percent of appraised home value. And the down payment requirement would drop from 3 percent to 1.5 percent.

The FHA mortgages would also be fixed at about 6 percent for the present, compared to the adjustable loans that are going sky-high.

And the government application process would be made easier and quicker. The legislation's sponsors note that from 1996 to 2005, the subprime market went up 13 percent to exactly match the decline in FHA mortgages during that real estate boom.

Rep. Michael Castle and Sen. Thomas Carper of Delaware, who both serve on banking and finance committees in Congress, are backers of these changes. The Senate and House of Representatives passed different provisions for FHA reform, and they must be reconciled now.

Hundred-percent mortgages have been criticized as stretching borrowers' limits. But the sponsors argue that FHA has a better track record with loss mitigation counseling for payers to fall behind, and a much lower foreclosure rate.

There's also an experimental option for credit granted on the basis of ordinary bill payment, for people who don't have much credit history.

Rep. Castle said that while expanding FHA loans likely won't help homeowners already facing foreclosure, they would open the housing market to poorer people who still aspire to buy.

And some homeowners who are slipping behind could try to refinance with the government. That would be welcome relief, too.

Source:http://www.delawareonline.com/apps/pbcs.dll/article?AID=/20080113/OPINION11/801130307/1112/OPINION