Bob Moon: A little over an hour from now, President Obama reportedly plans to announce some new help for hurting homeowners. White House sources are saying one of the new lifelines is aimed specifically at helping military members who are facing foreclosure. There's word another part of the plan would make it cheaper to re-finance mortgages insured by the Federal Housing Administration. Under that plan, an average homeowner with an FHA-backed loan would be able more than $1,000 a year.
For some background on this, let's turn to professor Robert Van Order at George Washington University. Thanks for joining us.
Robert Van Order: Thank you for inviting me.
Moon: What exactly does the FHA do?
Van Order: It's an insurance company. It's owned by the government and it insures mortgages. The mortgages tend to be to borrowers with low to moderate income -- although that's been less the case in the last few years. By and large, they're to borrowers who make small down payments.
Moon: Yeah, that's leads to my next question -- how big of a role does the FHA play in the nation's real estate market right now?
Van Order: Right now, it's a rather large role. It's on the order of maybe a quarter of the mortgage market. If you went back about five years, it was more like 5 percent. What happened is that with the bust in the subprime business -- which actually took away a lot of FHA business -- FHA's come back. It's been promoted, the loan limits have gone up, and so it's a much bigger part of the market now than it was just five years ago.
Moon: Well, we know what the cost of being popular was for Fannie and Freddie -- will allowing people with FHA-backed loans to refinance put the agency into a budget bind?
Van Order: No, I think probably the proposal that comes out this morning doesn't affect its income a whole lot. These are already FHA borrowers, so if they're in trouble, FHA's on the hook for them. What they're doing is making it easier for them to refinance and pay lower rates. So in terms of income, it probably won't affect the FHA very much. In terms of insurance payouts, it'll probably help some, and it will have a negative effect on the people holding the securities that fund the loans.
Moon: Professor Robert Van Order at George Washington University, thanks for joining us.
Van Order: Thank you.