While on the surface many consumers and economists seem to think that federal home loan modification programs and other federal actions to help the housing market are a good thing, there are those who believe these programs may not be completely beneficial.

Today, the housing market has been affected by many factors. There was the housing bubble, where many people bought houses that they couldn’t afford and now find themselves with homes worth less than what they owe on the home. In some of these cases, the homeowners may feel very stuck and about ready to just send their keys to the home loan holder.

The FHA is doing many things to try to help. They’re propping up the market in a number of ways. They’re funneling capital into the market by guaranteeing that lenders will be paid, even if the home loan borrowers default. The money is funded by insurance premiums, rather than by taxpayers, so it’s argued that this is a safe approach in terms of fiscal responsibility.

Still, this may be sowing the seeds of future foreclosures. This may eventually make the FHA just another agency that will need a bailout from the taxpayers. The capital reserves in the FHA have fallen dangerously low. The FHA is supposed to have a cushion of a full two percent, but today their capital reserves are under half a percent.

While this has been going on, Congress has actually stepped in and doubled the maximum amount that the FHA can guarantee on a mortgage. The limit is now $729,000 for a single family home, and $1 million for multiple family properties.

This move may have made sense in some markets where housing is priced significantly higher, such as in California. However, in many places, this is much more than is necessary. On top of that, there is discussion about making some of these steps permanent. There is even talk by some people in Congress to make the maximums even higher than what they are today. This puts the FHA in a position where they’re no longer just concentrating on home loans for families of low or moderate income levels.

Some folks in Congress are proposing changes. They’re suggesting that borrowers for FHA loans be required to have higher credit scores, for example. They also suggest cutting the amount that lenders can put toward closing costs or the down payment. Currently, the down payment amount is low at just 3.5 percent. Traditionally, this amount has been in the area of 20 percent.

The challenge now for the FHA is to support the market without putting themselves in a position where they will need a bailout, and where they won’t be providing loans that lead to another wave of foreclosures.

Photo via anadelmann