In light of the growing fallout in the subprime mortgage market, this could be the year the long-suffering Federal Housing Administration gets its much-needed makeover.

Unfortunately, though, it’s taking a brutal financial climate for some homeowners to trigger an increased push for modernization legislation. Despite that nasty climate, legislation now making its way through Congress that would revamp the FHA and its mortgage programs is still far from a sure thing.

Legislation that would overhaul and modernize the FHA recently met with approval in the House Financial Services Committee, and the entire House will likely vote on the measure sometime in June. Passage there would send the measure onto the Senate, which killed a similar legislative measure last year.

Some observers believe the disastrous climate surrounding the subprime crisis makes the legislation a no-brainer. Overall, about one in five people who obtained subprime mortgages in the last two years will wind up in foreclosure, according to the Center for Responsible Lending, a nonprofit advocacy group.

More than a half-million borrowers have lost their homes in the subprime market, and industry experts project that another 2 million or so are likely to meet a similar fate as the subprime crisis spirals.

A revamped and modernized FHA could help those borrowers recapture their financial futures through the administration’s government-backed loans and refinance programs. But nationally syndicated real estate columnist Kenneth R. Harvey pointed to a few spots where the pending legislation could snag, including a provision that would divert new revenues created by a bigger FHA for homeowner counseling, technological improvements or use in an “affordable housing fund,” according to Harvey’s column.

He also notes that private mortgage groups have a keen interest in keeping this legislation from hitting the books.

Despite those possible obstacles, Harvey says the legislation has a decent shot at full passage.

“Bottom line for reform: Slam dunk? No way. But the bill has a shot — either in its current form or by having essential provisions transplanted into an appropriations bill that can sidestep the land mines buried and waiting in the Senate — without blowing up,” he writes.

Know your credit score and don’t make fast moves

You might be surprised to know it can feel like you’re training for the Olympics to prepare for buying a house, but two lenders offer their advice on how to win the gold.

Huntsville’s Pat Sigle, loan officer with New South Federal Savings Bank, and Toni K. Roberts, mortgage advisor with ERA Mortgage, say a little preparation can promote a much smoother loan application process. The paperwork can seem endless, but it’s not all that complicated or demanding when you consider it will help you land your dream house.

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In the past decade FHA Loans have become increasingly unpopular due to being heavily bureaucratic, and subprime loans moving in the opposite direction by becoming much easier to get.  In the past year, though, many are turning back to the Federal Housing Administration-insured options for their home loans.

The reason?  All across the country low to moderate income home owners are struggling to make their mortgage payments, and the recent news surfacing about the ’subprime fallout’ has people reconsidering before jumping into no-money-down loans with adjustable interest rates.  Plus, most experts are predicting a grim future for the value of homes and for an increase in foreclosure rates in the American home market.

But first, a little update:  In recent years, the red tape FHA loans have been known for has been drastically reduced making it much easier to get a loan with the benefit of simpler requirements, lower interest rates, and lower down payments.  These changes alone have made a FHA loan a much more viable option for first time home buyers, those with poor credit, or low to moderate income.

There are also numerous Down Payment Assistance Programs that have been organized in recent years.  The programs help families who wouldn’t normally be able to pay the required 3% down payment to pay for these as well as other closing costs.  These are currently falling under scrutiny, however, and may be in danger of being discontinued.

The United States Congress has had a number of hearings concerning changes to the laws currently governing FHA loans in order to make them more accessible, and the House Financial Services Committee recently approved legislation to expand FHA powers allowing them to refinance more sub prime mortgages.  This proposal is headed next to the full floor of the House, where it is expected to pass.

All these changes have positioned FHA loans to take over for sub prime loans as the number one means for potential homebuyers to achieve their dreams of owning a home.  If you are considering purchasing a home in the near future, please be sure to see what options are provided for you through the FHA.