Here are the 5 things you need to know about these changes:

1. Changes are effective for case numbers assigned on or after April 15th, 2010.
2. New upfront mortgage insurance premium (UFMIP) will be 2.25% for all purchase and refinance loans. The premium for H4H and HECM is 2.0%.
3. This change applies to all standard FHA Single Family Programs except the following: Title I, Section 247-Hawaiian Homelands, Section 248-Indian Reservations, Section 223e-Declining Neighborhoods or Section 238c-Military Impact areas in Georgia and New York
4. Annual premiums will not change at this time
5. There will be no discount on the UFMIP for first-time homebuyers with pre-purchase counseling.

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Democratic leaders on Wednesday called on President Bush to appoint a “mortgage czar” to coordinate the federal response to the subprime mortgage crisis, saying the administration’s response so far has been inadequate. Senate Majority Leader Harry Reid, D-Nev., characterized the mortgage woes and the accompanying wave of foreclosures as a “national crisis” and said the administration had been slow to recognize the problem.The new special adviser would serve as a watchdog to monitor the markets for potential problems and work with regulators.Atop the Democrats’ agenda are proposals to overhaul the Federal Housing Administration (FHA) and increase the role of the mortgage finance giants Fannie Mae and Freddie Mac in boosting the markets.In more immediate action, the House is expected to vote Thursday on a measure (HR 3648) to help ease the tax burden on some homeowners facing foreclosure, and a House panel will mark up a bill (HR 3609) to modify certain bankruptcy rules to help people seeking to restructure home loans.Sen. Richard C. Shelby, R-Ala., ranking member of the Banking, Housing and Urban Affairs Committee, said the ideas being promoted by Democratic leaders were already under consideration.Shelby said officials at Treasury and the Federal Reserve are handling the subprime crisis and little would be gained by the addition of a new adviser. “Their efforts should continue unimpeded by another layer of bureaucracy,” he said.The House has passed a regulatory overhaul of Fannie Mae and Freddie Mac (HR 1427) and a bill to modernize the FHA (HR 1852).Christopher J. Dodd, D-Conn., who chairs the Senate Banking Committee, said his panel is “committed to working with the president to get FHA modernization legislation to his desk shortly.”Reaching a deal on Fannie and Freddie could prove more difficult. Democrats want the administration to further raise the investment portfolio caps on Fannie and Freddie, which together total about $1.5 trillion.Recently, Fannie and Freddie’s regulator said the government-sponsored enterprises (GSEs) could make relatively small increases in their portfolios. Lawmakers have said that the response is not enough.Sen. Charles E. Schumer, D-N.Y., plans to offer legislation to temporarily boost the portfolio caps by 10 percent. Fannie and Freddie would be required to use at least 80 percent of the money freed up by the change to help struggling subprime borrowers refinance loans.Meanwhile, discussions with the administration on steps that could be taken without legislation are progressing.The administration has suggested that any portfolio increases should be part of a broad overhaul of Fannie and Freddie. Both companies weathered major accounting scandals in recent years.Democrats are unlikely to tackle a broader overhaul and are leaning toward addressing the portfolio increase as a stand-alone issue. Barney Frank, D-Mass., who chairs the House Financial Services Committee, suggested that a temporary, subprime-focused portfolio increase could be acceptable.Schumer also called for action: “We should not wait for the full GSE reform to get the needed relief, because in the next three to six months things are going to get very bad.” About 2 million American homeowners are at risk of losing their homes to foreclosure. That includes many subprime borrowers who purchased mortgage products that are now resetting to much higher payment rates.Elsewhere, the House Judiciary Commercial and Administrative Law panel will mark up the bill that would allow bankruptcy courts to modify the terms of a home mortgage, a step not allowed under law.Rep. Brad Miller, D-N.C., said the changes could help keep as many as 600,000 people in their homes over the next two years by allowing them to restructure the terms of their loans. On the House floor, lawmakers are likely to approve the measure that would remove a tax quirk that can hit homeowners whose debt is forgiven through foreclosure, sale or loan restructuring. The bill is similar to an administration proposal, though the president prefers a temporary provision that would not be offset with new revenue

Democratic leaders on Wednesday called on President Bush to appoint a “mortgage czar” to coordinate the federal response to the subprime mortgage crisis, saying the administration’s response so far has been inadequate. Senate Majority Leader Harry Reid, D-Nev., characterized the mortgage woes and the accompanying wave of foreclosures as a “national crisis” and said the administration had been slow to recognize the problem.The new special adviser would serve as a watchdog to monitor the markets for potential problems and work with regulators.Atop the Democrats’ agenda are proposals to overhaul the Federal Housing Administration (FHA) and increase the role of the mortgage finance giants Fannie Mae and Freddie Mac in boosting the markets.In more immediate action, the House is expected to vote Thursday on a measure (HR 3648) to help ease the tax burden on some homeowners facing foreclosure, and a House panel will mark up a bill (HR 3609) to modify certain bankruptcy rules to help people seeking to restructure home loans.Sen. Richard C. Shelby, R-Ala., ranking member of the Banking, Housing and Urban Affairs Committee, said the ideas being promoted by Democratic leaders were already under consideration.Shelby said officials at Treasury and the Federal Reserve are handling the subprime crisis and little would be gained by the addition of a new adviser. “Their efforts should continue unimpeded by another layer of bureaucracy,” he said.The House has passed a regulatory overhaul of Fannie Mae and Freddie Mac (HR 1427) and a bill to modernize the FHA (HR 1852).Christopher J. Dodd, D-Conn., who chairs the Senate Banking Committee, said his panel is “committed to working with the president to get FHA modernization legislation to his desk shortly.”Reaching a deal on Fannie and Freddie could prove more difficult. Democrats want the administration to further raise the investment portfolio caps on Fannie and Freddie, which together total about $1.5 trillion.Recently, Fannie and Freddie’s regulator said the government-sponsored enterprises (GSEs) could make relatively small increases in their portfolios. Lawmakers have said that the response is not enough.Sen. Charles E. Schumer, D-N.Y., plans to offer legislation to temporarily boost the portfolio caps by 10 percent. Fannie and Freddie would be required to use at least 80 percent of the money freed up by the change to help struggling subprime borrowers refinance loans.Meanwhile, discussions with the administration on steps that could be taken without legislation are progressing.The administration has suggested that any portfolio increases should be part of a broad overhaul of Fannie and Freddie. Both companies weathered major accounting scandals in recent years.Democrats are unlikely to tackle a broader overhaul and are leaning toward addressing the portfolio increase as a stand-alone issue. Barney Frank, D-Mass., who chairs the House Financial Services Committee, suggested that a temporary, subprime-focused portfolio increase could be acceptable.Schumer also called for action: “We should not wait for the full GSE reform to get the needed relief, because in the next three to six months things are going to get very bad.” About 2 million American homeowners are at risk of losing their homes to foreclosure. That includes many subprime borrowers who purchased mortgage products that are now resetting to much higher payment rates.Elsewhere, the House Judiciary Commercial and Administrative Law panel will mark up the bill that would allow bankruptcy courts to modify the terms of a home mortgage, a step not allowed under law.Rep. Brad Miller, D-N.C., said the changes could help keep as many as 600,000 people in their homes over the next two years by allowing them to restructure the terms of their loans. On the House floor, lawmakers are likely to approve the measure that would remove a tax quirk that can hit homeowners whose debt is forgiven through foreclosure, sale or loan restructuring. The bill is similar to an administration proposal, though the president prefers a temporary provision that would not be offset with new revenue

The Bush administration announced a new mortgage industry coalition on Wednesday aimed at helping homeowners avoid being trapped in a rising tide of foreclosures.

Treasury Secretary Henry M. Paulson Jr. said the initiative would help coordinate efforts by financial companies to help an estimated 2 million homeowners whose introductory mortgages with low rates are now resetting at much higher rates, greatly increasing the risk they will default on the loans.

“A combination of stagnant or falling house prices, low down payment mortgages and resetting adjustable-rate mortgage rates are creating real challenges for many American homeowners,” Mr. Paulson said in a statement.

He said that 11 of the largest mortgage service companies, representing 60 percent of all mortgages in the country, had agreed to join the new coalition. Other members will include mortgage counseling agencies, investors and large trade organizations.

“These leaders recognize that by working together, coordinating and scaling up their activities, they will be able to work toward the goal to help more homeowners,” Mr. Paulson said.

The initiative, which has been named Hope Now, follows an announcement by President Bush on Aug. 31 that the administration was making changes in the Federal Home Loan Administration insured-loan program so that more people could qualify for F.H.A.-insured loans.

Democrats, however, have criticized the administration, saying the actions so far have been too little and too late to significantly address a growing foreclosure crisis as homeowners struggle to deal with sharp increases in their adjustable mortgage payments.

The rising defaults, which started in the market for subprime mortgages — loans offered to people with weak credit histories — upset global financial markets in August, prompting the Federal Reserve to cut interest rates last month to make sure the country did not get pushed into a recession.

Mr. Paulson said the new coalition had put together an “aggressive plan to reach more homeowners and help them find a way to stay in their homes.”

He said that he was happy to see that the American Securitization Forum, which represents investors who buy mortgages that have been repackaged into securities, had agreed to join the alliance. He expressed hope that the group would grow to represent more than 60 percent of outstanding mortgages.

“We need greater participation if we are going to get to all those that need help as quickly as possible,” he said.

According to some estimates, mortgages converting from low teaser rates could mean an extra $250 to $300 in monthly payments on a typical $1,200 monthly mortgage payment.

WASHINGTON – President George W. Bush today announced that HUD’s Federal Housing Administration (FHA) will help an estimated 240,000 families avoid foreclosure by enhancing its refinancing program effective immediately. Under the new FHASecure plan, FHA will allow families with strong credit histories who had been making timely mortgage payments before their loans reset-but are now in default-to qualify for refinancing.

In addition, FHA will implement risk-based premiums that match the borrower’s credit profile with the insurance premium they pay-i.e., riskier borrowers pay more. This common-sense, risk-based pricing structure will begin on January 1, 2008.

“Many hard-working American families who were able to make their mortgage payments under the initial teaser terms of the exotic loan are now struggling to make ends meet because their rates have doubled or tripled,” said HUD Secretary Alphonso Jackson. “FHASecure will bring stability to the housing market and give eligible families who were in good financial standing before their loans reset a chance to keep their homes.”

The combination of FHASecure and risk-based premium pricing will permit FHA to return to the role it was originally designed to play, bringing stability to the real estate market by helping break today’s cycle of foreclosures and price depreciation and creating much needed liquidity in the now-constricted mortgage market.

FHA has recently experienced a substantial increase in the number of conventional borrowers refinancing into FHA products. With FHASecure, it can help even more. The number of these refinancing transactions has tripled since the start of 2006. FHA’s transactions are projected to surpass 100,000 loans by the end of the fiscal year. To date, these figures do not include refinances for delinquent borrowers.

The FHASecure initiative will operate under the same safe guidelines as the FHA’s existing mortgage insurance program without affecting FHA’s financial health. Eligible homeowners will be required to meet strict underwriting guidelines and pay a mortgage insurance premium, which offsets the risk to FHA’s insurance fund at no cost to the taxpayer.

The risk-based insurance premium structure will further expand FHA’s reach to additional underserved borrowers, particularly minorities and first-time homebuyers who have been disproportionately lured into exotic mortgages, and enhance the FHA’s overall risk management. The move to risk-based premiums ensures that FHA remains on solid financial footing as a self-financed agency for the long-term.

FHASecure, like all FHA products, will be underwritten to ensure the borrowers have the ability to repay the loan, will require escrow for taxes and insurance, and will continue to offer unprecedented foreclosure prevention assistance. The FHA has never permitted and will not include pre-payment penalties or teaser rates that are common in exotic mortgages and have caused much of the current market troubles.

To qualify for FHASecure, eligible homeowners must meet the following five criteria:

1. A history of on-time mortgage payments before the borrower’s teaser rates expired and loans reset;
2. Interest rates must have or will reset between June 2005 and December 2008;
3. Three percent cash or equity in the home;
4. A sustained history of employment; and
5. Sufficient income to make the mortgage payment.

“FHASecure is designed for families who are good borrowers but were steered into high-cost loans with teaser rates,” said Assistant Secretary for Housing-FHA Commissioner Brian Montgomery. “These homeowners, many of whom are minorities, need a safe, affordable mortgage product that will help build wealth. All FHA borrowers pay mortgage insurance premiums to offset claims to the FHA insurance fund and ultimately prevent risk to the taxpayer.”

FHASecure will also bring much-needed liquidity to the mortgage market. FHA anticipates more lenders will offer FHA-insured loans, pool them, and securitize them with the Government National Mortgage Association (Ginnie Mae), which has the full faith and credit of the U.S. government. This guarantee makes Ginnie Mae’s mortgage-backed securities the safest on the market and helps to channel greater capital into the housing market, benefiting U.S. homeowners.

Since its inception in 1934, FHA has helped almost 35 million people become homeowners, making it the largest insurer of mortgages in the world. The 109th Congress introduced the Expanding American Homeownership Act in June 2006 which would enable FHA to be a safe option for more underserved low- and moderate-income and minority families so they can achieve the American Dream of homeownership. Today, President Bush also urged Congress to quickly pass the Administration’s FHA modernization proposal to help more families in need.

For more information about FHASecure and other FHA products, please call 1-800-CALL-FHA or visit www.fha.gov or www.hud.gov. For a list of your local homeownership center or a HUD-approved housing counseling center, go to www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm

WASHINGTON

House lawmakers are planning to vote Tuesday on an overhaul of a federal agency that insures mortgages against default in an effort to help struggling homeowners avoid foreclosure.

The plan of leading House Democrats to expand the role of the Federal Housing Administration goes further than the Bush administration’s plan to ease some of the mortgage market troubles that have rattled the economy.

Both House lawmakers and the Bush administration want to allow the FHA, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for borrowers who are delinquent on payments because their mortgages have reset to higher rates from low initial levels.

But the administration objects to a plan by Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, to raise the limit on the size of mortgages FHA can insure to $500,000 in high-cost areas of the country from the current $362,000.

The White House said in a statement Monday that the program “should remain targeted to traditionally underserved homebuyers, such as low- and moderate-income families.” The administration wants the FHA loan limits to be raised to $417,000 in high-cost areas.

In the Senate, meanwhile, legislation by Senate Banking Committee Chairman Christopher Dodd, D-Conn., and the panel’s senior Republican, Sen. Richard Shelby of Alabama, would raise the limit to $417,000.

While FHA loans are insured by the government in the event of default, the mortgages themselves are made by major lenders such as Bank of America Corp. and Wells Fargo & Co., and are typically offered to investors as mortgage-backed securities by federal housing finance agency Ginnie Mae. The FHA currently insures 3.7 million loans.

U.S. Representative says GSE amendment would make loan cap $500,000

Last Update: 2:01 PM ET Sep 11, 2007

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By Damian Paletta

Of DOW JONES NEWSWIRES

WASHINGTON (Dow Jones)–U.S. House Financial Services Committee Chairman Barney Frank said Tuesday an amendment he plans to offer next week would raise the limit on the size of loans that could be insured by the U.S. Federal Housing Administration, with a provision that would allow more growth based on market conditions.

The amendment, which would likely pass, would be attached to a broad reform bill that aims to give the Federal Housing Administration more flexibility to insure riskier mortgages. FHA is a division of the U.S. Department of Housing and Urban Development.

Frank, D-Mass., said the amendment would raise the size of loans that could be insured by FHA “to $500,000 – that would be the base, and in addition to that it would give the HUD secretary the ability to raise it” if market conditions require such a adjustment.

Frank’s comments came during a meeting with reporters after his speech to the National Association of Federal Credit Unions.

Frank on Tuesday also urged Senate lawmakers to pass broad reform of the supervision of Fannie Mae and Freddie Mac. The House passed a bill earlier this year, and Frank said that stronger regulatory oversight for the companies might make the White House more comfortable with allowing the companies to buy larger mortgages and increase the size of their portfolios beyond strict limits.

“Beyond that, I do think the (Bush) administration would fight hard against raising the jumbo (limit) and increasing the portfolio in the context of the current regulation,” Frank said. “The best thing that would happen would be for the Senate to take up the whole (GSE reform) bill.”

And potentially some tax help, too. Here are breaks that borrowers in a pickle may receive in the next few months.

By Jeanne Sahadi, CNNMoney.com senior writer

September 12 2007: 1:52 PM EDT

NEW YORK (CNNMoney.com) — Hundreds of thousands of homeowners who may struggle to make mortgage payments are likely to get some relief in coming months, including more options to refinance into lower-cost, fixed-rate loans and tax relief if they do face foreclosure.

About 240,000 borrowers of the estimated 2 million with adjustable-rate loans scheduled to reset in the next year already are eligible to refinance into a loan insured by the Federal Housing Administration (FHA) – roughly 80,000 of them are eligible because of the newly created FHASecure Act, which loosens FHA’s criteria for refinancing. And more changes are likely, with the possibility of helping tens of thousands more.

The FHA program has been geared toward home buyers and homeowners with weak credit. Lenders may be more willing to lend to a buyer with shaky credit when the FHA is insuring the loan.

Borrowers with FHA-insured loans – which they get from private lenders as they would any other mortgage – pay a small premium to the FHA every month. The FHA, in turn, uses those premiums to cover the lender in the event of foreclosure and requires lenders to pursue viable ways to help borrowers avoid foreclosure if they become delinquent.

If you are behind on payments by at least four months but no more than 12, the FHA may even make a one-time interest-free loan to you to make your account current with your lender.

It used to be you couldn’t refinance into an FHA loan if you’d been delinquent in your payments for any reason. But with the FHASecure Act, delinquent homeowners qualify for an FHA-insured refi if they have:

• A history of on-time payments for at least six months before their loans reset to higher rates
• Interest rates scheduled to reset between June 2005 and December 2009
• 3 percent equity in their home, or the cash equivalent
• A sustained history of employment
• Sufficient income to make their FHA-insured mortgage payment and all other obligations

The FHA will still insist that lenders verify borrowers’ income and ensure that their total debt payments don’t exceed 43 percent of their income or that their mortgage payment won’t exceed 31 percent of income. If those ratios are exceeded, the lender must explain how the homeowner can compensate for that.

For borrowers who qualify, an FHA refi can save them money. Even with the premiums FHA charges, an FHA-insured loan could save a borrower $100 or more a month for every $100,000 borrowed compared to the payments they’d owe under an adjustable-rate mortgage that readjusts upward by 3 percentage points.

And if the homeowner has an FHA-insured loan for five years and has built up 22 percent equity in the home, the borrower no longer needs to pay the premium.

FHA requirements may get even more liberal

Lawmakers also are considering legislation to modernize FHA guidelines, which could make FHA refis available to another 60,000 troubled mortgage borrowers, and open the door to another 140,000 new home buyers who today wouldn’t qualify for an FHA-insured loan, according to FHA estimates.

Jaret Seiberg, a financial services analyst at policy research firm Stanford Group, expects lawmakers will pass the FHA legislation, noting that it has broad support in both parties. “FHA reform is the lowest hanging fruit. It’s the easiest thing to do.”

That legislation would further liberalize FHA loan requirements. Among its key provisions, it would:

Raise loan limits. Today the FHA won’t insure loans above $362,790 for single-family homes, and even less in lower-cost areas. Under the bill before the House, which is expected to vote next week, that ceiling would increase to 100 percent of the conforming loan limit for mortgages backed by Fannie Mae and Freddie Mac, currently $417,000.

But Barney Frank, chairman of the House Financial Services Committee, plans to propose an amendment that would boost that new limit to $500,000, and give the FHA commissioner discretion to raise that limit further during mortgage crises.

Reduce down payment requirements. Homeowners would no longer be required to have 3 percent equity or the cash equivalent. They could get an FHA-insured loan with 0 percent down.

Reduce complexity. Reform also would “clear away a bunch of burdensome rules that make FHA difficult to use,” Seiberg said.

Foreclosed borrowers may get tax break

For homeowners whose situations can’t be remedied with a refi, they may get tax relief if they end up facing foreclosure.

Currently, if you foreclose on your home and the bank forgives a portion of your mortgage debt which isn’t recovered by the sale of your home, that forgiven debt is treated as taxable income to you. President Bush has asked lawmakers to provide a temporary exemption from that rule.

Both Seiberg and Clint Stretch, managing principal of tax policy at Deloitte Tax LLP, think it’s likely lawmakers will pass that exemption this fall and make it retroactive so that homeowners who foreclosed in 2007 would be covered.

On Aug. 31, while many of us were getting ready for a long holiday weekend, President Bush addressed the nation about the mounting concerns in the housing market. His speech took place exactly one month before we’ll see a record-breaking $50 billion in mortgages reset to a new rate.

That’s right, in the month of October alone, many homeowners will be forced to pay higher monthly mortgage payments than they can reasonably afford. And while this number is staggering, it’s not exactly new information — it’s been known for two years that the crisis was coming.

The Associated Press reports that, in all, 2 million homeowners have adjustable rate mortgages scheduled to reset by the end of 2008. Of those, the Federal Housing Administration (FHA) estimates that 500,000 could experience foreclosure.

Is Bush’s Proposal Enough?

In my opinion, the president’s proposal is an excellent start — but will it offer enough help to those half-million families at risk of losing their homes?

Bush isn’t proposing a direct bailout for homeowners who knowingly overextended themselves. Nor will the government be rescuing irresponsible lenders and speculative investors who bought homes to flip for a profit. As the president acknowledged, that would only encourage the problem to occur again.

Instead, Bush’s proposal strikes a balance by offering:

• Temporary tax relief to ensure that cancelled mortgage debt on a refinanced mortgage isn’t counted as income

• A foreclosure-avoidance initiative through homeowner education and outreach

• Ways to help responsible homeowners refinance through FHA loans offering a lower interest rate and lower monthly payments

Help for Those in Trouble

Among the president’s new initiatives is the immediate introduction of a refinancing product called FHASecure. This product will now be offered through the FHA and offers help to homeowners who are already in default of their primary residence mortgage loans. Previously, the FHA would not insure refinanced loans from borrowers delinquent or in default, so this is a significant change.

There are specific criteria that must be met in order to qualify:

1. First and foremost, you must have a history of on-time mortgage payments before your teaser rate expired — which means you must have a decent credit history.

2. Your interest rate must have reset after June 2005 but before December 2009.

3. You must have at least 3 percent cash or equity in your home.

4. You must have a sustained history of employment.

5. You must have sufficient income to make your mortgage payments.

Beefing Up the FHA

Since 1934, the FHA has helped more than 34 million people become homeowners — not by lending them money directly, but by guaranteeing their loans. This reassures lenders who might otherwise be reluctant to make loans to buyers who don’t have a lot of money. Borrowers have always paid a set price for this insurance.

The president’s proposal seeks to introduce risk-based pricing, which will give borrowers with weaker credit more access to FHA loans. Rather than being denied an FHA loan, underserved borrowers will instead pay a slightly higher fee. This will allow them to refinance at a lower interest rate with more affordable monthly payments.

President Bush is also asking Congress to pass new legislation that would modernize the FHA. These proposed changes — including lower down payment requirements and higher maximum loan limits — would also help borrowers with weaker credit and lower incomes. Hopefully, Congress will act quickly.

Can the Fed Help?

Echoing the sentiments of President Bush, Federal Reserve Chairman Ben Bernanke also weighed in on the situation on Aug. 31. He stated that it’s not the responsibility of the Fed to protect lenders and investors from the consequences of their actions.

However, he also acknowledged that developments in certain financial markets, including those currently emerging with mortgages, could have broad economic effects. As a result, the Federal Reserve will take those effects into account when determining policy.

Many believe the odds are growing that the Fed will cut the federal funds rate, now at 5.25 percent, by at least one-quarter percentage point on or before Sept. 18, its next regularly scheduled meeting. The Fed hasn’t lowered this rate in four years.

That could be good news if you currently have an adjustable rate mortgage. Even a mild rate cut of .25 percent might mean a slightly lower payment for you now. A cut of .75 percent would create significant breathing room for those on a tight budget, and could potentially send the stock market on a tear. My prediction is that the rate will get cut between 25 and 50 basis points.

Other encouraging news came on the Tuesday after Labor Day, when the Fed put added pressure on loan-servicing companies to modify loan terms or defer payments for borrowers having trouble making their mortgage payments and facing default.

Bush Backs Giving Agency
Flexibility to Offer Options
For Mortgage Refinancing

August 22, 2007; Page A4

WASHINGTON — As the subprime-mortgage crisis ripples through the broader housing market, the Bush administration is eyeing an often overlooked federal mortgage insurer to help low- and middle-income homeowners avoid foreclosure.

President Bush has balked at allowing mortgage giants Fannie Mae and Freddie Mac to buy more mortgages for their portfolios to ease the credit crunch triggered by rising defaults on home loans to borrowers with poor credit. But he said earlier this month that he supports giving the Federal Housing Administration more flexibility to help those facing foreclosure refinance their homes.

•  What’s Happening: The Bush administration is eyeing the Federal Housing Administration, an often-overlooked federal mortgage insurer, to help low- and middle-income homeowners avoid foreclosure.

•  How It Would Work: The FHA could offer refinancing options to homeowners, including those who aren’t yet in default, but who risk falling behind on payments that jump when rates are reset.

•  What Needs to Happen First: The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd said recently that FHA reform will be among his top priorities, and a bill passed by committee is set to head to the full House this fall.

Treasury Secretary Henry Paulson, meanwhile, has instructed staff to work with the Housing and Urban Development department, which oversees FHA, to find ways to help individuals caught in the fallout of the credit crunch.

The administration is looking to FHA to offer refinancing options to homeowners, including those who aren’t yet in default or foreclosure, but who are at risk of falling behind in their payments on mortgages that were structured to offer payments that were very low at first but then escalated.

The effort is likely to jump-start legislation in Congress to give the housing authority more tools to assist homeowners. Senate Banking Chairman Christopher Dodd (D., Conn.), said recently that FHA reform will be among his top priorities when Congress returns from its August recess. The House Financial Services Committee passed a bill in June that is expected to head to the full House this fall.

For decades, the New Deal-era agency was used by low- and middle-income home buyers who had little or poor credit and would have trouble getting a loan in the primary market. The FHA didn’t originate loans, but insured them against default by somewhat risky buyers, giving lenders an incentive to issue a mortgage.

In recent years, the agency lost market share as the market for subprime loans exploded and home buyers of all income levels were offered a range of exotic loan products, such as no-money-down mortgages and interest-only payments. While FHA-insured loans once accounted for roughly 15% of the mortgage market, that number has fallen below 5%.

But many buyers who got subprime loans are beginning to have trouble making their mortgage payments as the attractive initial “teaser” interest rates are reset at much higher levels. While many of those buyers believed they could refinance their loans, that has become much harder as mortgage lenders tighten their standards in the face of defaults and foreclosures. The Center for Responsible Lending estimates as many as 2.2 million loans will reset over the next two years.

FHA says it is constrained from doing more now because of limits on the size of the loans it can back and some requirements that borrowers must meet. While its refinancing business has picked up and the agency expects to refinance about 120,000 loans this year, FHA officials say they could easily double that amount if given greater flexibility.

Among the options being discussed in Congress is eliminating or reducing the required 3% down payment, raising the size of the loans FHA can insure to as much as $417,000 from $362,790, and being able to charge insurance premiums based on a borrower’s risk instead of a one-size-fits-all rate.

Federal Housing Commissioner Brian Montgomery said the current rules effectively prevent FHA from helping borrowers in high-cost states, such as California and New York. Most of the loans it insures are in places such as Texas and the Midwest.

For the Bush administration, backing FHA reform offers a way to straddle the growing calls for government assistance to those caught in the subprime mess without advocating a financial bailout.

Fannie and Freddie, backed by a host of Democratic lawmakers, have argued they could provide liquidity to the rattled housing market if allowed to grow their portfolios beyond strict limits. Their portfolios are capped in part because of accounting scandals at the government-sponsored entities and Mr. Bush has said Congress should pass long-awaited reforms that would tighten oversight of Fannie and Freddie before allowing them to grow.

Still, an administration official said the government is sensitive to the need to help minimize “collateral damage” from the subprime woes, such as massive foreclosures that could hit certain neighborhoods hard and affect property values broadly. To that end, Treasury and HUD are looking to find ways to assist borrowers who are creditworthy, but who got caught in a pinch and are facing higher mortgage payments than they can afford.

One challenge for the administration is trying to identify borrowers who are likely to get hit with a change in their loan payment — known as a reset — that could force them to default on their mortgage, and then figuring out ways to help them refinance. Among the possible options are for government agencies such as FHA or Fannie Mae and Freddie Mac to refinance some of those loans at a lower interest rate.

But not everyone is convinced, and FHA reform may run into trouble in the Senate. Alabama Sen. Richard Shelby, the ranking Republican on the Senate Banking Committee, has expressed concern about expanding FHA, saying it could ultimately hurt taxpayers.

“One lesson learned from the current pattern of defaults and delinquencies in the subprime market is that those borrowers with little or no equity in their home will be the most likely to fail,” he said at a hearing last month. “We must approach any attempt to expand the program or lower the program’s standards with great caution.”