FHA loan products continue to support the mortgage industry.  Subprime mortgages and home equity loans have disappeared, so FHA has been pulling the slack for new homebuyers and homeowners who need to refinance their mortgage for a lower payment. The government has been promoting homeownership as the “American Dream.” FHA mortgage loans provide fixed rate financing with low down payments at reasonable rates; their main drawback is the mortgage insurance premiums that must be paid up front and annually. Borrowers typically add the up-front mortgage insurance premium to their FHA loan amounts, and then pay an annual premium of approximately one half percent of their mortgage balance annually until their loan to value ratio reaches 78% or less. Increasing home loan insurance premiums would likely discourage buyers from FHA mortgages and decrease its market share.

Although FHA administrators appear confident that they can avoid a shortfall of reserves, it also seems likely that they may have to make some changes to reduce risk.

ü  More significant down-payments?

ü  Stricter credit guidelines?

Requiring more for down-payments could help reduce the FHA’s exposure due to declining home values; and tightening credit requirements and mandating homebuyer education programs could help reduce mortgage defaults.

Taxpayers not likely support another mortgage bailout, and FHA provides an essential role in expanding accessibility to homeownership, and in the recovery of US housing markets.?