FHA Aims for Buyers in Subprime Market

FHA is unveiling mortgage products that U.S. Housing and Urban Development Secretary Alphonso Jackson believes will help the agency compete with subprime lenders for first-time buyers who have below-average credit scores and limited cash for down payments.

On June 4, the FHA will introduce a low-downpayment mortgage that will allow the borrower to add another $15,000 to the loan to renovate a home to the agency's minimum property standards. Additionally, a hybrid five-year adjustable-rate mortgage carrying 2 percent annual rate-increase limits and 6 percent life-of-the-loan limits also will be available to consumers by the spring or summer. Moreover, FHA-approved lenders will offer forbearance agreements or loan modifications to help borrowers who miss payments stay in their homes and avoid foreclosure.

Jackson believes the FHA loans offer better rates, fees, and consumer protections than subprime lenders--which have seen their market share jump from single digits to 25 percent over the last 10 years, while the FHA has fallen from 11 percent in 1995 to 3.3 percent last year.