U.S. Rep. Barney Frank, D-Massachusetts and Chairman of the House Financial Services Committee, Thursday introduced legislation to enable the Federal Housing Administration to insure and guarantee mortgages that have been written down banks and other mortgage holders, Rep. Frank announced in a statement.

Rep. Frank's proposal would permit the FHA to provide up to $300 billion in loan guarantees which could potentially result in the refinance of 1-2 million at-risk mortgages, preventing foreclosures, "protecting neighborhoods and help stabilize the housing market."

MarketWatch has published a story that details the conundrum new first-time home buyers are facing in today's market. In "First-time home buyers struggle to find down-payment money," staff writer Amy Hoak tells about a middle-class family that bought a house a couple of years ago without having to put any money down. This same family, admittedly, would have trouble finding a loan today to finance their purchase.

Typically, when mortgage lending is restricted, it affects first-time owners the most because they frequently lack the funds for a down payment. According to the MarketWatch article, 45% of first-time home buyers opted for 100% financing between July 2006 and June 2007.

Experts are predicting that lenders are going to require more and more down before they're willing to lend to home buyers. To counteract stricter lending practices, check out loans backed by the Federal Housing Administration (FHA). According to MarketWatch, statistics confirm the recent popularity of these loans: The FHA backed 17,773 purchase loans in December 2006; that increased to 24,817 purchase loans in December 2007.

Down payments for these types of loans are around 3% and there are even down-payment-assistance programs to help to this end.

With market prices catering, buying a home in certain localities may prove a good move.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund.

Groucho Marx once remarked that whenever things start to look really dark, remain calm, don't panic, and above all, turn on a light.

Given the barrage of financial stresses battering the credit and equity markets these days, consumers, economists and investors alike could use some of Groucho's levity, and some light. In this case the light may appear in the form of the Federal Housing Administration.

What's old is suddenly new

The Federal Housing Administration, the once-viewed-as-antiquated, irrelevant Great Depression-era government agency, is suddenly emerging as the centerpiece of government efforts to bolster the U.S. housing market, reported The Wall Street Journal (subscription required.)

The FHA has become the cheapest, and in many cases, the only alternative for borrowers who can make only a small down payment, and the agency is rapidly gaining market share.

With home foreclosures expected to increase in 2008 as the second wave of variable interest rate mortgages reset, an influential member of Congress is expected to introduce legislation that would enable the Federal Housing Administration to buy at-risk loans, enabling them to be refinanced and preventing homeowners from being foreclosed upon, The Financial Times reported Wednesday.

U.S. Congressman Barney Frank, D-Massachusetts and chairman of the House Financial Services Committee, is floating a $15 billion initiative that would authorize the FHA to buy as many as 1 million at-risk mortgages, The FT reported. Some loans, such as those for investment properties and vacation homes, would not be eligible for the program.

The overlooked FHA

Overlooked during the "Roaring 1990s" economic expansion and this decade's housing boom, the Federal Housing Administration is a Depression-era agency that insures loans made to borrowers with poor credit.

Imagine if most of the homeowners whose mortgages are larger than their home values got a hand from the government. It may actually happen. According to The New York Times, "With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater."

Helping these people out will almost certainly cost taxpayers money because the federal government will have to take on the risk of refinancing most of these mortgages. The FHA may expand its program to insure mortgages so homeowners can replace adjustable mortgages with lower fixed-rate plans. The government could also buy a huge number of delinquent mortgages and allow homeowners to replace them with ones that have lower monthly payments.

The Feds are damned it they do and damned if they don't. A full collapse of the housing market could cause a financial catastrophe and pull many financial institutions under. The government might have to support big banks with special lending from the Fed. That will cost taxpayers money as well.

If the government creates a true safety net to reduce foreclosures, it might not lose a lot of money at all. If home prices become more stable, defaults will fall and home prices should start to move back up. The Feds may have lost very little capital in the process because people will be able to handle their obligations and FHA insurance won't be needed to cover failed mortgages.

No one knows what will happen, so it is a crap-shoot either way.

Douglas A. McIntyre is an editor at 247wallst.com.

President Bush wants Congress to act fast on pending legislation that would give homeowners more options for refinancing their home loans. Economic adviser Ed Gillespie told reporters Bush wants Congress to act faster to "help make the market more stable."

While some support this legislation, others think that those in trouble have made their own beds and now they must lie in them. Even so, many people who didn't make any mistake and have fixed-rate loans are still feeling the pain as home prices continue to fall. Anything that can be done to help homeowners avoid foreclosure and stay in their homes will help everyone. Fewer homes will end up on the market at fire sale prices and the market will begin to stabilize.

What legislation does Bush want to pass? There are three key pieces:

• Make it easier for low-income homeowners to refinance adjustable-rate mortgages through the Federal Housing Administration. Of course, for this to work pre-payment penalties on those ARMs would have to be outlawed. Many of the ARMs set to jump 2% to 3% have prepayment penalties of $12,000 or more and home values lower than the mortgage amount due.