Editorial: Revenge of the FHA.(Editorial)

In today's world, some of the hottest mortgage products to hit the market in recent years have gone bust. Payment-option ARMs, interest-only loans and subprime hybrids helped homebuyers and investors get in as the housing market was cresting toward a peak. But with collateral values falling and default rates soaring, lenders and Wall Street have heaved these innovative private-label products overboard.

There will come a day when innovative underwriting returns to the market, hopefully with a lot less risk layering than was tolerated during the housing boom. But in the meantime, it's back to basics. And back to some forgotten loan products that had seen their star fall during the boom.

Loans guaranteed by the Federal Housing Administration were once a cornerstone of the first-time and modest-income homebuyer market. Now, after years of seeing their market share deteriorate, the FHA is back with a vengeance. Lenders looking for loans that can still be sold into the secondary market are embracing the FHA, despite the lower margin on FHA product. (But don't forget, higher servicing fees on FHA loans make them an ...