The number of mortgage applications specifically for government-insured home loans continued to grow in October, according to recent data from the Mortgage Bankers Association.

The government-insured share of all applications (including Federal Housing Administration or FHA loans) rose to 32.9 percent during October 2008, the highest percentage since February 1991. It was also up dramatically from a 10.3 percent share last year at the same time. The percentage has steadily risen since the beginning of this year when it was 9.4 percent.

“This increase in the share of government-insured mortgage applications provides further evidence that there are still loans available to qualified borrowers, particularly through the FHA,” said MBA Chairman David G. Kittle. “The mortgage market remains fully operational and lenders are working to ensure borrowers with sufficient down payment and good credit have the opportunity of homeownership.”

The MBA suggested several reasons for the rise in popularity of government-insured loans over the past year.

For example, FHA loans are among the least expensive mortgages when it comes to down payment requirements. Borrowers can make a down payment as little as three percent of the total loan amount.

Another reason is that the Economic Stimulus Act of 2008 in March and then the Housing Bill in July raised the conforming loan limits, making it possible for those in high-cost markets to take advantage of FHA programs.

Additionally, borrowers with less than perfect credit will often more readily qualify for FHA loans than they would with loans from companies like Freddie Mac and Fannie Mae. +

Finally, FHA loans offer upfront mortgage insurance premiums which are often more attractive to buyers than paying hundreds of dollars in private mortgage insurance until the loan-to-value ratio reaches 80 percent or more.

As the economy becomes increasingly unstable, more and more borrowers are finding safety and financing availability with FHA loans. That will likely remain the case until the market reaches equilibrium again and investors return to mortgage backed securities arena.