How Can FHA Loans Help in a Depression

Earlier this year, congress and the Bush Administration enacted the Economic Stimulus Act of 2008, in an effort to stimulate business investment and attempt to avert impending crisis and recession. Needless to say, their efforts haven't been terribly effective so far, for reasons we're all familiar with. What you likely remember about the act is that you received a $300-$600 rebate check after filing your taxes this year, but what you may not recall is that the act also affected the ceiling for FHA-insured home loans.

Prior to March 6, 2008, the limit for FHA loans was $362,790. What that meant was that the FHA could not legally provide insurance to loans above that set value. As part of the stimulus package this year (referred to as the "FHA Forward" program) however, congress authorized the Federal Housing Administration to increase their maximum loan limit from $362,790, to between $271,050 and $729,750, depending on location and the size of the home. For instance, in Denver the FHA will now insure mortgages on single-family homes as high as $406,250. The most populous areas with the highest costs of living such as New York City and Los Angeles have seen their limits increased to the full $729,750.

As availability of private mortgage insurance grew (along with other options), popularity for FHA loans waned, but the past several months have seen a resurgence of FHA loans. Due to many sub-prime lenders recently finding themselves teetering on the verge of default, many banks and lending institutions have become increasingly reluctant to provide 100% financing on home mortgage loans, and FHA loans are being seen more often as the alternative for potential borrowers who would not normally be able to receive conventional financing for their new home.

The Federal Housing Administration was created as part of the National Housing Act of 1934 (subsequent to the New Deal creation of the Securities and Exchange Commission), as a reaction to the collapse of the banking system in the 1930's, in order to counteract the vast decline in home ownership during the Great Depression. It's not that surprising then that a broad section of public is revisiting the FHA for assistance now, as we move toward what's being called the greatest threat to the economy of the U.S. has been faced with in almost eight decades.

An important distinction to make is that the FHA does not itself originate loans, but rather insures lenders against loss, should a borrower become unable to meet the terms of the loan. Seeing as that's the case, every FHA loan is not created equal. Different lenders offer different terms and incentives, and for that reason consumers should consider meeting with a Certified Mortgage Planner (not the same thing as a broker) who can assist them in comparing offers from the lenders who meet their criteria.

With the latest polls showing continuous decrease in consumer confidence, and increase in pessimism regarding the economy, it's not surprising that we're looking to some of the same institutions for help now that we did during the Great Depression. It isn't possible to predict with certainty what will happen in the next couple of years, but at least we can all take comfort in something this time around that we weren't able to last time: we've seen it all before.

Article Source: http://www.rightbiz.com

Rate1st is the largest online lending network in the United States, and is proudly provides a safe, efficient, and easy way to shop for FHA loans during hard economic times. To contact a Certified Mortgage Planner about information on an FHA loan, please visit www.Rate1st.com.

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