The first report card for an old mortgage product revamped to help today's struggling borrowers is showing a better than passing grade. Use of Federal Housing Administration...

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The first report card for an old mortgage product revamped to help today’s struggling borrowers is showing a better than passing grade.

Use of Federal Housing Administration loans is up 78 percent in the Seattle area this budget year compared with all of fiscal 2007, and there are still five months to go.

Statewide, FHA loans are up 51 percent, according to data released Thursday by the U.S. Department of Housing and Urban Development, FHA’s parent.

The increases are the result of two factors: the meltdown in the mortgage industry that’s made it harder for borrowers to get conventional home loans and a congressional move to make FHA loans, previously dismissed as noncompetitive, more attractive.

In March, as part of a federal economic-stimulus package, FHA’s loan limit was raised from $362,790 to $567,500 in the Seattle metropolitan area. This more than covers King County’s median single-family home price, $440,000, and buyers are taking note.

FHA underwrote 34 loans statewide in March; by May, with the new limit in place, the number was up to 125.

As the ultralow down-payment programs that had fueled the hot housing market vanished, FHA has become one of the few resources for buyers with as little as 3 percent down.

It also offers a lifeline to owners with non-FHA adjustable-rate mortgages who’ve fallen behind in house payments and face a loan reset resulting in higher payments.

“By no means does [FHA] match some of the products that were out there 18 months ago, like zero-down loans, but it’s the best boat in the water right now,” said Leland Jones, FHA’s Seattle spokesman.

Noting that it’s harder now for people to qualify for other types of mortgages, HomeStreet Bank Vice President David Hatlen deemed FHA particularly helpful to buyers with impaired credit.

Someone with a FICO score of 620 or better (out of 850) can get the same interest rate as someone with a score of 780, Hatlen said.

By comparison, a non-FHA borrower with a score of 620 to 639 would pay 2.5 additional points (or accept a higher interest rate).

But FHA loans require all borrowers to buy mortgage insurance, which adds to their cost, so “you have to run the numbers both ways” to analyze whether FHA is the better deal for a particular borrower, Hatlen said.

FHA also requires counseling for borrowers who get into trouble on their mortgage payments. As a result, “FHA foreclosure rates have been staying lower than the average in most states,” Jones said.

Although the loans are touted as most helpful to those living in areas with high housing costs, FHA statistics show an increase in its loans throughout Washington.

In Yakima, for example, FHA wrote 189 loans last fiscal year. In seven months this year, it’s written 234.

Statewide, it’s written 11,924 this year compared with 7,945 for the last fiscal year.

This year’s largest number, 5,765, were for borrowers living in the central Puget Sound area, from Everett through Tacoma and including Bremerton. FHA loans are available at banks, credit unions and mortgage companies.

Elizabeth Rhodes: