The problem is simple; with foreclosure rates skyrocketing, the FHA has had to pay out more and more insurance claims to the mortgage companies. Part of every FHA loan is the mortgage insurance premium (both upfront and monthly). The upfront mortgage insurance premium is paid (who would have guessed?) upfront at closing. However, it is possible to roll that premium into your financing (so many people don't actually bring that cash to the closing table).
The monthly mortgage insurance premium is a monthly fee tacked onto your your mortgage payment. Like other insurances, you're paying today, in case something goes wrong tomorrow. In the event a home buyer defaults on their loan and the house is foreclosed on, the lender gets paid out of the FHA funds that are built up through the collected of these mortgage insurance premiums.
So somebodies got to pay; guess who....
