FHA's role expanded in U.S. mortgage fix

WASHINGTON, June 29 (UPI) -- The Federal Housing Administration is likely to emerge as a much bigger force in the U.S. home mortgage industry, market players say.

The agency, which was established in the 1930s to deal with the housing crisis of the Great Depression, could see its function of providing federal backing for private mortgages greatly expanded under legislation being considered by Congress, The Wall Street Journal reported Sunday. The new laws could help hundreds of thousands of people stuck with adjustable-rate mortgages they can no longer afford refinance into FHA-backed deals, providing the mortgage-holder agrees to write off some of the principle.

"This is the most significant piece of housing legislation in a generation," Francis Creighton, vice president of legislative affairs at the Mortgage Bankers Association, told the Journal. "It gives people the ability to get out of trouble."

Under the terms of the bill, FHA refinancing may be available to those who are not facing foreclosure, but the lender would have to agree to reduce the principal of the loan to roughly 85 percent of the property's current appraised value, the newspaper said. Lenders could be motivated to do so because often they lose even more money when they foreclose.