Business
Government home loans are making a comeback
01:00 AM EDT on Sunday, April 29, 2007
The federal government helped create the mortgage industry in 1934 by insuring long-term housing loans, but it has largely disappeared from the market in recent years as private lenders have led the mortgage boom. Now government loans may once again be finding a spot on the borrower’s short list.
Mortgages insured by the Federal Housing Administration are starting to make a comeback as banks and regulators tighten lending standards throughout the nation and turn away many low- and moderate-income homeowners. According to mortgage industry analysts and executives, such loans include important benefits not common in the current pool of conventional mortgages.
For instance, FHA loans include loss mitigation provisions. If borrowers miss several payments after losing a job or some other crisis beyond their control, the lender can recover that money from the government, then allow the borrower to repay it at the end of the loan.
There are several reasons the loans have grown less common in recent years. One reason is the government has fairly low limits on how big a mortgage it will insure.
Loan size, said Kim Neilson, the senior vice president of the McCue Mortgage Co. in New Britain, Conn., continues to be “a big damper” for many borrowers in the Northeast. For instance, in Fairfield County, Conn., the maximum FHA loan for a single-family home is about $363,000, but the median price in the county’s largest municipalities is $473,000.
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