Government officials and real-estate industry interests maintain that the FHA, which now backs some 3.7 million loans in the event of default, is hamstrung by existing law. The size of mortgages the agency can insure is often too small to attract borrowers in expensive areas such as California and the Northeast - reducing the FHA'S share of the home-loan market to around 4 percent from 19 percent a decade ago.
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An estimated 2 million to 2.5 million adjustable-rate mortgages are scheduled to "reset" this year and next, jumping from low "teaser" rates for the first two or three years to much steeper rates that could cost borrowers their homes. The issue has brought politically charged debate in recent weeks over possible responses by the government, while turbulence in financial and credit markets resulting from the mortgage upheaval has cast a shadow over the economy and raised the specter of a possible recession.
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Administration officials have said the full impact on the economy of the worst housing slump in 16 years and wildly gyrating financial markets has yet to play out. Wall Street has been betting on an interest-rate cut by the Federal Reserve - the first in more than four years - at its meeting Tuesday, to prod millions of borrowers to spend and invest more and thereby revitalize the economy.
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