The Virginian-Pilot

Homebuyers in Hampton Roads in recent years increasingly have relied on loans insured by the Federal Housing Administration. But in an effort to shore up its balance sheet, the agency is planning measures that would limit the number of people who can qualify for their loans.

Mortgage insurance, which compensates the lender if the borrower stops paying, typically is required when an individual purchases a home. As private mortgage insurers tightened standards in the wake of the housing downturn, homebuyers found the FHA's loan-guarantee program one of the only ways to qualify for a loan.

The share of local home sales with loans insured by the FHA grew to 27 percent in 2009, the highest point in more than a decade and up from 4 percent in 2005, according to figures compiled by Old Dominion University economists. Real estate experts said that percentage is likely to grow in 2010.

The FHA program was set up in 1934 to expand homeownership by helping people with lower incomes qualify for loans. The FHA program came under scrutiny as defaults on its loans climbed past 9 percent nationwide at the end of last year.

In January, the agency announced that it would raise fees and increase down payment requirements for borrowers with low credit scores in a bid to boost its dwindling reserve fund, which fell below a minimum set by Congress of 2 percent of its outstanding loans.

"They're trying to stem these foreclosures because they know there's probably another wave coming," said Steve Rockefeller, past president of the Tidewater Mortgage Bankers Association.

By : Josh Brown