WASHINGTON – April 28, 2008 – New government data shows that claims on Federal Housing Administration (FHA) mortgage insurance, which is backed by the government to prevent foreclosures, rose by 61 percent last year compared to five years ago.

These payoffs allowed more than six in 10 homeowners who defaulted on FHA-insured loans to stay in their homes, up from three in 10 in 2000.

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.

As the 2008 election campaign gets into high gear, Democrats are promoting bills that would help more challenged borrowers refinance into affordable loans. As many as 2 million mortgages with a value of $300 billion could be included.

The FHA says its workouts are a cost-effective solution in keeping with its social mission, preventing losses of up to $2 billion a year if the homes are foreclosed upon, and saving whole neighborhoods.

Republicans, who generally oppose these kinds of bailouts, say the FHA has pushed mortgage servicers to make loan modifications that are unlikely to work, and that the system is open to cheating by borrowers who deliberately withhold payments.

“Markets go up, they go down, and the government should not be involved in determining which way they go,” said Rep. Randy Neugebauer (R-Texas) during a House Financial Services Committee meeting.

Source: The Wall Street Journal, Louise Radnofsky (04/25/08)

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