Last week it seemed that Bush may have opposed the FHA loan expansion programs. Ironically, the FHA was born in 1934 during the great depression in an effort to stabilize the housing market with the mission of HUD’s fair lending policies.  The thirty-year mortgage loan featuring a fixed interest rate was a FHA initiative.

Secretary Paulson informed Congress to forget about passing a Democratic bill that would create a special Federal Housing Administration fund for refinancing one to two million homeowners with home mortgages that were greater than the home’s value.   According to mortgage banker Bryan Dornan, “FHA has clearly been the savior for home financing products for the mortgage industry in 2007 and 2008.”  Dornan continued, “Having the ability to offer Americans a quality home loan with an affordable rate is critical during these uncertain financial times.”

Under the proposal sponsored by Rep. Barney Frank, D-MA and Sen. Christopher Dodd, D-CT., FHA mortgage lenders would have to write down the mortgage to 85% Loan-to-Value. The FHA loan proposal would give lending-investors the option of taking a “quick hit or a slow bleed,” one pundit of the bill remarked.  It might also offer homeowners a new opportunity with an affordable FHA mortgage and a fresh start.  Recently we were told that Housing Dept of Urban Development has been working on a similar mortgage product. But the Bush administration does not want Congress to tinker with it, because it would be available faster by using FHA’s existing authority to mold the loan products for today’s circumstances.