FHA Rescue? Get it While You Can
A New York Times story claims that while politicians are getting a lot of media play with claims that homeowners in financial trouble will be rescued by the Federal Housing Administration (FHA), the agency itself may not be capable of that feat. FHA has been successful largely due to the fact that buyers are required to purchase insurance and until now the premiums were always sufficient to cover losses triggered by defaults.
The defaults that caused this deficit are largely attributable to loans that allow seller-financed down payments — approximately 35% of all FHA mortgages. You can see where this is going — buyers with none of their own money in the property have a default rate of 2 to 3 times that of other FHA borrowers. And now the rest of you who hope to be rescued by FHA may not be because of the losses generated by people who never should have been given mortgages. Either they were not capable of making the payments, or they were and simply decided not to — not difficult when you have none of your own money invested.
So if you think an FHA loan might improve your finances my advice is to get it now — who knows when that well will run dry?
Tags: FHA, foreclosure, refinance help
April 9th, 2008 at 6:21 pm
Well this is definitely encouraging. So in order to deal with this deficit, they are planning on charging the new buyer/borrower, rather than going after those that created the issues. Seller financing the down payment for the buyer sounds like a pretty desperate situation - I wonder what were they all thinking…
April 10th, 2008 at 9:19 am
Now is definitely the time to analyze what worked and what went wrong in mortgage lending. No down payment doesn’t work — if borrowers have problems with their mortgage they are far more likely to walk away when the entire loss will be born by taxpayers, lenders, investors, and insurance companies. Similarly, brokered loans have have resulted in default/ fraud rates of up to 5 times that of retail-originated loans. Getting rid of brokers would leave a large hole in the market and drive out competition — so instead brokers need to have a stake in the loans they originate — in the form of bonds or insurance and they should face strict licensing / education / conduct requirements as well.