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
Depression-Era FHA Tries to Save Mortgages
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)

(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.

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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." (Read more Federal Housing Administration stories.)

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