There is a lot a brainstorming going on in Washington as congress looks for ways to help homeowners avoid foreclosure. The FHA a central piece of one prominent plan. Here is an excerpt from a recent AP article on the subject:
A broader housing overhaul proposed by Dodd and Rep. Barney Frank, chairman of the House Financial Services Committee, faces an uncertain road.
Frank and Dodd want the Federal Housing Administration, the Depression-era agency that insures mortgages, to guarantee $300 billion to $400 billion in refinanced loans to troubled borrowers. Lenders would first have to agree to take a loss on the mortgages; borrowers would have to show they could afford to make payments on the new loans.
The plan would insert the government into the maelstrom of the subprime mortgage mess, with public money at risk should homeowners default. But it would rescue hundreds of thousands of borrowers from foreclosure and insure that lenders get something from their mortgages. That, in turn, could boost investor confidence in the value of mortgage-related investments.