U.S. Agency Helps Prop Up Housing Market

Wall Street Journal (04/25/08) P. A4; Radnofsky, Louise; Crittenden, Michael R.
The FHA reports a 61 percent jump in lender incentives paid from its insurance fund to prevent foreclosures to $158.6 million in 2007 from 2003. The percentage of homeowners able to keep their homes as a result rose above 60 percent from about 30 percent in 2000. A proposal by House Financial Services Committee Chairman Barney Frank, D-Mass., to refinance up to $300 billion in problem mortgages through the FHA could cost $3 billion to $6 billion, though it remains to be seen whether lender incentives would be raised. By orchestrating workouts with lenders, the agency says it saves $2 billion annually and safeguards entire neighborhoods, with FHA office of single-family asset management deputy director Laurie Maggiano noting that just 12 percent of workouts are unsuccessful. For every FHA-backed loan that goes into foreclosure, the agency's insurance fund pays $98,740 on average to mortgage servicers; in contrast, it gave incentives of $136 to $7,169 to lenders willing to modify loan terms.