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Sunday, April 13, 2008

The biggest problem in the subprime mortgage fix




April 13 2008 Best-Mortgage-Companies.com
The Federal Housing Administration is at the center of all of Government’s efforts to rescue the battered housing markets. But it's not clear whether the agency is up to the task or whether it will need a taxpayer-funded rescue. The agency currently backs $385 billion in mortgage loans, but that figure could double in the coming year if some of leading proposals in the White House and Congress go through. Prior to this year, the Federal Housing Administration had seen its market share shrink to almost nothing. The agency faces the enormous challenge of filling the gap left by not only subprime lenders, but of being the first choice for many borrowers. It will be very difficult for the Federal Housing Administration to handle the increased role.

The FHA program is intended for mortgage borrowers with weak credit or little or no cash, who may not be able to otherwise get an affordable mortgage. Borrowers get FHA loans from private lenders, just as they would any other mortgage. FHA offers insurance to cover lenders if those borrowers, who pay a small insurance premium to the FHA every month, default on the loan. The FHA uses those premiums to cover the lender in the event of foreclosure.

No one knows if FHA premiums will be able to cover the increased risk of FHA's expanded mission.
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