Depression-Era FHA Tries to Save Mortgages

Long-sidelined agency now a central player in the credit crisis
By Kevin Spak,  Newser Staff
Posted Mar 6, 2008 1:00 PM CST
William Reed talks about squatting in vacant houses, Thursday, Jan. 10, 2008, in Cleveland. The nation's foreclosure crisis has led to a painful irony for homeless people.   (Associated Press)
camera-icon View 3 more images

(Newser) – It’s been a while since the Federal Housing Administration was relevant. But now policymakers are counting on the Depression-era agency, which mostly insures mortgages, to once again solve a housing crisis. FHA-insured loans are swiftly becoming substantially cheaper than their Fannie Mae or Freddie Mac backed counterparts. “The FHA’s role is going to be huge,” predicted one mortgage consultant.

In 1934, the FHA could back nearly any home loan around, but in years since it’s been relegated to helping low-income, entry-level buyers. In the stimulus package, Congress reversed course, more than doubling the maximum loan size to $729,750. Competitors accuse the FHA of underpricing, but the agency is just doing it’s job, one official said. "We need to be there as a backstop."