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News Flash!! FHA is squeezed for money!

I found this to be very newsworthy information since many of AR members have been really focused on FHA and the First-Time Tax Credit. What a bumpy ride it's going to be. Tell me what you think! We are about to see a whole lot of lenders disappearing as a result of this. In fact, as of November 18th, FHA borrowers will no longer be able to finance their closing costs into their loans when they refinance, known as a "STREAMLINE REFINANCE" as one of the results of the current announcement. We all better wish for a recovery and fast.

The Federal Housing Administration has been hit so hard by the mortgage crisis that for the first time, the agency's cash reserves will drop below the minimum level set by Congress, FHA officials said.

The FHA guaranteed about a quarter of all U.S. home loans made this year, and the reserves are meant as a financial cushion to ensure that the agency can cover unexpected losses.

"It's very serious," FHA Commissioner David H. Stevens said in an interview. "There's nothing more serious that we're addressing right now, outside the housing crisis in general, than this issue."
...
[Stevens] said he is planning to announce Friday several measures that should help the reserves rebound quickly.
...
An independent audit due out this fall will show that the agency's reserves will drop below the 2 percent level as of Oct. 1, the start of the new fiscal year, Stevens said.
...
For one, he will propose that banks and other lenders that do business with the FHA have at least $1 million in capital they can use to repay the agency for losses if they were involved in fraud. Now, they are required only to hold $250,000. Second, he will propose that lenders also take responsibility for any losses due to fraud committed by the mortgage brokers with whom they work.
emphasis added

Here is a table of FHA lenders with a 2 year default rate of 15% or more (This consists of lenders with 100+ originations included). There are 10 lenders with "perfect" records (100% default), but they only have one or two originations each. Many of these lenders will probably go away with the new rules.

The FHA is banking on a "recovery in the housing market":

The new audit shows that even without any new measures, the reserves will rebound to the required level within two or three years largely as the result of the recovery in the housing market, Stevens said. This calculation is based on projections of future home prices, interest rates and the volume and credit quality of FHA's business.

Posted by TED CANTO - www.tendayclose.com on 09/18/2009 06:50 PM

Comments (104)

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104 Comments on News Flash!! FHA is squeezed for money!

SEP

That is some pretty heavy stuff. How do you think that will affect lending moving forward?

One more stumbling block to get buyers into a home and the whole economy moving toward recovery.

No more bad news...I just can't take it anymore. When will we really start to recover?

Wow - that is some very serious news. And given the amount of buyers who want to do an FHA loan, this is really scary for their prospects. I'm going to stay parked here to hear what others have to say.

I read an article not to long ago stating this has been the busiest year ever for FHA. I thought that was a good thing but apparently not...

WOW. OK everyone say "recovery" on 3, maybe we can start something??

Ted, What happens if the cash reserves drop below 2%? What kind of real impact will this have?

My first thought was "crud, FHA has been my biggest source of business this year". My second thought was that going forward FHA will be one of the big reasons for any housing recovery that might happen and I would think that the government would take whatever measures to keep FHA as one of their tools for the housing recovery. If they bailed out Fannie Mae and Freddie Mac, which were pseudo government agencies, then they will take care of the FHA. I wouldn't worry too much about it.

SEP

That post does, indeed, sound "heavy". I wonder, however, how much impact this really will have in the market??? Interested for more commentary from some "experts", as that is most definitely not me in this realm!

Wow, this is excellent information and a must to know for anyone licensed in real estate. Thanks for sharing it.

Many different results are possible but one.. that FHA will be shut down. What is certain to happen, in fact is already taken place today is that FHA coupled with Lender-made requirements will equate to even more stringent decision making. This, I believe, can result in a slow down of home sales (I reiterate, CAN not that it in fact WILL). However, what will need to occur, predicted by the nature of the default rate, underwriters will take a closer if not some different approaches to their decision making = LESS APPROVALS; at least until the default rates go down.

This is indeed distressing news.

Please excuse my grammar on the reply as I was replying hastily from my mobile phone while at the movies.

This is pretty heavy, but I'm thankful that you've brought it to our attention!

Rich! I apologize! I didn't address your question. My guess is that if the reserve falls below 2 percent, you will see FHA clamp down hard on loans being insured to root out any fraud. Doing so, will allow FHA to make the lender liable and likely to shut down. The monies would help to replenish the reserves. This will also ensure that the lenders take good care of their FHA scorecard (This is how lenders are rated with FHA; EXCELLENT, GOOD, FAIR, & BAD LOANS (Although not that simple). This basically means tighter requirements. Also means less Loan Officers and more business for the good ones. Of course, there will be a trickle effect into conventional loans as well (actually happening as we speak).

Thanks for this information Ted. My agents will appreciate the update though many will echo Keisha's comments.

Ted -

Was this a news release from the FHA? From another source? I don't find the original reference in your post or the date.

A good 50% of my clients have had FHA financing in the last 12 months. Its one more piece of our puzzle that is not fitting together.

Ted, this is unsettling news. FHA is the only entity that has kept the housing industry alive during the credit crisis.

Ted, We are all wishing, hoping and praying for a housing recovery. If the housing industry rebounds, a crisis will be diverted. Let's hope that Congress and the FHA get it right this time.

okay let's see;

lenders will need to show a stronger financial picture.

i'm okay with that.

and the BIG message is don't commit loan fraud.

i'm really okay with that!

The average default rate on the FHA loans is 19%! Wow!

Here is the source of what you are quoting in your post at calculatedriskblog.com

When will we really start to recover?

When the government gets out of housing.

FHA loans are the bread and butter of housing. Perhaps a higher MIP premium could help

When will we really start to recover?

When the government gets out of housing?

No, when Realtors wake up and realize that we are inthe worst economic crisis of our lives!

Michael- It is a news release and I made the mistake of not putting the source as it is important to do so. I will update when I get to the office. We also received some mortgagee letter (ie; Updates) from FHA and notice in our underwriter briefings. *Laura- Your comment prompts the question as to how many loans are new loans (1-2 yrs) that are defaulting or are the a bit older. *Brian- What most professionals don't know is that FHA has been a program that has been a very big factor of rebounding our RE market at every downturn since the Depression. However, I believe it isn't that bad as it sounds. It just means we work a wee-bit harder. *Jay- I couldn't agree with you more. This means more biz for us. *America's #1- Be very careful what you wish for. Besides FHA has been an excellent program. In fact it is the reason your business alive today. I can give you historical stats to prove my point. If you'd like. *Joe- I am sure they'll figure it out to get it right. This isn't the first time they've had problems.

HMMMMM......................... Let's see here. Something else with the word FEDERAL is in trouble go figure. This is the change many of you voted for. Expect more of the same my liberal bleeding heart do gooder friends.

I'm certainly no loan expert. However, I'm wondering if some of the bailout funds that have been recovered by some of the banks paying them back, couldn't be diverted to infuse cash into FHA.

Ted...Thank you for the update on FHA. We are doing alot of FHAs in our market. The list of default lenders with 15% or more in 2 years is an eye opener. Great post.

Jerry Gray CRB,CRS,GRI / Prudential Carolinas Realty / Winston Salem, NC

One of the fundamental problems with the entire industry is not the FHA or guidelines set by Fannie or Freddie. It is how consumer debt (credit card, auto, etc) is handled. They are directly linked. How often have we seen borrowers whose "all other" monthly mortgage obligations exceeded their mortgage payment when they are trying to refinance? How often have we seen two car payments greater than the mortgage payment? The chances are great that those car payments and other debt occured AFTER the mortgage loan was approved. Borrowers get squeezed and default. It is no surprise that FHA loans would be impacted first because those borrowers most likely did not have much in liquid assets during application time. Now, they are in a new home with no extra cash. They need to furnish the place and start to run up the credit cards....THAT is where we have a problem. Virtually NO regulation.

Read about the... FHA Reverse Mortgage Program For Seniors

Lucky for us we don't write much FHA. We mostly write USDA. It's a better program anyway and 100% financing! We did recieve notice yesterday as of Jan 1 our appraisers will be on a rotation just like conventional is now. If we keep doing business without fraud we should all be fine. Do what's best for your CUSTOMER and go USDA if the area qualifies.

FHA financing has been a major factor in the increase in home sales. FHA has always provided a way for more homebuyers to purchase homes and condominiums with reasonable underwriting guidelines. FHA also did not get sucked into changing it's guidelines to provide sub-prime mortgages. While conventional financing continues to be more difficult to obtain, FHA is the shining light in what has been a dismal housing market. Let's hope that the government and FHA stay committed to their goal of making homebuying possible to those who can truly qualify, afford it, and have proven the ability to repay.

I'd hate to see the housing market if FHA financing becomes less available and more difficult to obtain.

With the $8000 tax credit ending and now this, November and December are going to be some rough months in the real estate market.

I'm seeing the reprecussions already.

Bank of America, the largest servicer of FHA/Govy loans is now starting to do what is essentially a second underwrting process before any Mortgage Bank can attempt to sell the loan on a Secondary market. So now it's not a matter of your Mortgage Bank saying "yep, the Buyers/loan look great" and heading towards closing--they have to get that A-okay from BOA prior to close. No more bundling loans and selling them off.

With all the hurdles of the last year, I'm going to have to buy better track shoes ; )

I go back to the lat FHA crisis that was the early 1990's, based on the late 1980's recession. At that time the reserves were bolstered by an increase in FHA fees. Then as this ridiculous bubble housing market got going , FHA tried to adjust to be more like the conventional as it was losing ground. The current issue is that they now see the housing probelm not ending like the Pollyanna's are saying that it's all good now. It sounds like these people at FHA are more realistic than most. I also hope that we can ditch the notion that everyone should own a home. If this cuts back on people buying and more people renting, that is not bad. My suggestion for Realtors is to get better educated on investment real estate. It looks like the immediate future to me.

Minimum levels set by Congress.

Which begs to question. What exactly hasn't Congress stuck it's nose in and mucked up the soup?

Is it just me or is anyone else starting to see a pattern here. One failed government policy and program after another. It was Congress, through legislation which forced banks to give loans to people who wouldn't normally qualify that started this whole mess. The banks in turn created the derivitives market to spread the potential losses.

Folks what we are seeing is the cascading effect of unintended consequences due to congressional meddling.

And people actually advocate a government run health care program.

It's time to face some facts. This market is never going to recover unless we the people start demanding that Congress get it's nose out of the free market.

I say it's time we put Fannie Mae, Freddie Mac, FHA and all the other government programs out to pasture, and then shoot them for good measure.

What's crazy is that they're predicting a resolution based on future activity. FHA is going to have to be taken over just like Fannie and Freddie. Mark my words. Predicting better outcomes is no solution. If it was, I would predict that I'm going to win the lottery. FHA's odds are only slightly better than mine.

Great information. The key word here is "Federal". This administration will not let this happen. That is why we are going to be further in debt and the first time buyer tax credit will be extended and made available for everyone. This will insure that the housing market continues to get better.

Just something to think about.

Fha just announced that they are solvent and will not require federal bail out money. They also Made the big announcement that they are adopting the HVCC for the most part that Fannie Mae adopted in May. They are adopting this as of January 1. No mortgage Brokers will be able to order FHA appraisals from appraisers directly. Should be interesting the GOOD news is appraisers must be paid their normal fees and AMC's can't Cut their fees in half! What this means is even higher appraisal fees for borrowers and homeowners for FHA loans since AMC's jack up their fees over and above appraiser fees!

Here is Friday's follow up story.

http://www.latimes.com/business/la-fi-fha19-2009sep19,0,1758884.story

Ted, thanks for bringing this to our attention. The lending institutions need to stay liquid in order to keep making loans. This is vital to our business!

Okay, read the last comment and the original article - what do I think now??? I just hope it is not a setback for the housing market or something that makes lenders once again tighten standards - whew I'm ready for some encouraging news!

I wouldn't worry too much, its not really the position of this administration to let huge lending facilities simply fail and prevent the flow of money to potential borrowers. Expect the govment to prop up the FHA with a backstop, extend and increase the 1st time buyer tax credit and increase the printing presses to mach 3 speed.

So, let take a step further...Will Obama find a solution to our mortgage and housing crisis? I'd like to hear the opinions of everyone.

In my opinion, this crisis was brought about by the dishonest politicians and lenders that pushed the relaxation on credit guidelines. Loan programs such as "No Docs, Stated Incomes/assets, Option Arm loans, etc."....People were able to buy but could not keep or maintain what they bought. It all IMPLODED finally creating an economic nightmare affecting so many.

If Obama cannot fix this crisis, the economy cannot recover the way it should.

Wow, a thread with a little teeth, how refreshing.

FHA's problems are more a reflection of the double digit unemployment, not: "this crisis was brought about by the dishonest politicians and lenders that pushed the relaxation on credit guidelines. Loan programs such as "No Docs, Stated Incomes/assets, Option Arm loans, etc."....

Historically, FHA borrower's have always been the first to suffer when layoffs result in unemployment. It doesn't mean the lender committed fraud to put the loan together. It's simple economics really, if a person loses his job and there aren't any others available he's likely to go into default.

FHA will survive, but we may see a tightening of underwriting guidelines. Will that cause some people not to qualify? Probably, but maybe now they will take the time to get their financial house in order before they take on the responsibilities of home ownership.

The best info, is the list of lenders with default rates exceeding 15%. Did anyone else notice that the country's largest lender is in at 16% +? . Many of these companies are out of business, they just don't know it yet.

I was at a seminar the other day and the speaker made a very interesting analogy. He said in the previous market, the realtor was driving the car with the buyer in the front seat, and the lender was chasing behind waving the paperwork. In today's market, care to guess who's driving now?

Wow! Dave.. First.. Its worthy to note you didnt have the courage to put your login ID. Secondly, Don't be mad that your posts have never been featured. Thirdly, You indeed can finance your costs into the loan with an appraisal however with most of the markets losing value, its a mute point you're making. Fourthly.. You seem very angry and you came off like a jackass which I guarantee most people on this blog will agree. Fifth.. You obviously don't know me and if you do for some miracle, you obviously ate a hater. Sixth.. You are the only one to rhink that this is not newsworthy. You obviously missed the point of Social Media. Can I ask that we give anonymous Dave a group hug?

That is absolutely huge. Without housing there is no recovery, I don't even want to imagine the fallout from something like this.

Wow, I'm scared now! FHA has funded this year for me. No less than 98% of all transactions closed since Jan have been with FHA loans. I was already worried about Dec-Feb; now it looks very bleek.

PLEASE DO NOT BE ALARMED! It does not mean anything other than we all should ensure due diliigence in our work. I can guarantee it will be fine. Nonetheless it is worth noting.

Fewer FHA approvals would greatly impact sales in my market area as most sales have either been cash sales or FHA mortgages. The low down payment required by FHA has allowed sellers to sell their homes at the current market value (which has wiped out all their equity) and to purchase a new home. Without FHA loans I don't know of any other option for financing for the vast majority of buyers whose equity has been wiped out by the market downturn.

Economist Ann Schnare, writing in Real Estate Economy Watch on June 29 (Can FHA Dodge the Bullet?) questioned whether FHA's reserves could remain above the minimum level and warned readers about the consequences.

"Under relatively conservative assumptions regarding future house price trends and economic conditions, we project that Fund will experience a capital shortfall," she wrote. "Our conclusion that FHA will not be immune from the market forces currently ravaging the mortgage industry should hardly come as a surprise. In fact, the real question is how the Agency has been able to dodge the bullet thus far. Part of the explanation is that FHA was largely out of the market at the peak of the housing boom. As a result, most FHA borrowers entered the housing downturn with at least some accumulated equity in their homes. In addition, while most FHA borrowers put little money down and have relatively weak credit profiles, FHA mortgages have none of the toxic features characteristic of subprime loans, for example, reduced documentation or teaser rates.

"Our analysis suggests that the forces that have protected the FHA Fund thus far have more or less come to an end. While the projected capital shortfalls at FHA may pale in comparison to the losses at Fannie Mae and Freddie Mac, the prospect that the Fund may fail to meet its mandatory capital requirement by the end of the year is nevertheless troubling. The continued availability of FHA mortgages will be critical to the recovery of the housing market. Without a strong and active FHA presence, millions of prospective borrowers will lose access to mortgage credit," she concluded.

This is all the result of the real estate bubble, subprime lendinding with no government oversight with other peoples' money, and turning the mortgage business over to used car sales staff.

With subprime lending gone, FHA, which had lost all it's market share in the run up from 2000 to 2006, has to fill the gap and provide stability. That is why FHA was created, in the wreckage of the Great Depression. A former manager of mine started off in a bank in Minneapolis, and would get little old retired couples come in, and make their monthly FHA mortgage payments of 6%, and he'd have to try to sell them a refinance (spread out payments, payoff other higher rate loans, money for kids' college), and they'd give him a 5 minute lecture on frugality, responsibility, and thrift.

Now, if anyone wants their "change" back, go to Lehman Brothers and see if they'll start up those Aurora Loan Services 100% one loan NOO, with 680 FICO's. If you're crying about politicians letting lenders loosen guidelines, then I assume you are for more government oversight?

Ted although I appreciate the post I don't see nor can I find any links to the scource or to Commissioner Stevens quotes in you post. Blogs can be great ways to share when they provide credible links. Do you have any to share?

George there are a couple links in this blog that will lead u to news updates. Unfortunately i am on the links.

FHA loans are a very small part of my business but a big part of news that media latch on to. Real estate is local and I feel for all of you who may suffer even worse problems as this situation works itself out. We do need to be aware of the issue and look to solutions/alternatives to keep the sales activity strong. Kathleen Barnato. Santa Barbara / montecito. California

Will not affect me, in the upper price levels we are seeing a huge upturn in activity. We must put everything into perpective and not knee jerk at every announcement. Tighter lending practices all round can only create a more stable future. We need to look long term.

FHA would never be shut down...not even a talking point. Without FHA there are no loans. If the US can bail out all these other organizations they can certainly bail out HUD if needed. Unless you are a fear mongerer, there is no reason to be murmuring this to every homebuyer out there....in my opinion. FHA defaults are most likely caused by severe unemployment...not poorly written loans. An underwriter cannot tell if a potential borrower will be laid off of work.

Why do people assume all loans in default are a result of fraud?

Thanks for the post Ted. IMHO I think Realtors will more than likely not feel any affect of this. The waters they operate in are already muddied (declining values, short sales, crazy lending requirements). For loan originators this will likely just cause another of the many hurdles for them to navigate. A 1 million net worth requirement will drive LOs to larger lender/broker shops, and Underwriting guidelines may become more tight/unpredictable.

For lenders still in business, this is the 7th round of a 10 round fight and they've already been punched in the face enough that one more won't matter to much.

Brad you are 100 percent correct. This basically means people who really do not belong in a home will not get one and will force RE Agents and LO'S to work on quality clients. May mean we all work a bit higher.

Great Post Ted! and some excellent responses. Seems like you have some fans....and some opponents.

What we are seeing is a continuation in guideline changes, brought upon by risk assessment of loan portfolios. Did anyone really believe that we are in the clear and Investors would be relaxing guidelines?

I love Greg Cook's analogy in his post. More important now than ever to have a Mortgage Professional pre-approve the potential buyers before you waste time with clients that have challenges with either their credit, income, or assets.

The last few years have forced many Real Estate Professionals to change carrers. We are still experiencing unprecedented times in our country's history. Those of us that remain in the Real Estate industry in any capacity, need to be adaptable to the many challenges that we will ultimately face.

Good Luck to us All!

If FHA is going to start using HVCC like Fannie is now, I think that is more of a problem and we are moving in the wrong direction. We do not need higher prices for our buyers, nor to be at the will of a lot of incompetant appraisers because the good ones do not want to work for less pay and do more work.

I agree with you there Ted - nothing to panic about as yet. Today is yard work day, but before I head out into the unrelenting Arizona sun, let me make a quick point which I hope will bring some clarity. FHA does not fund loans. Lenders fund loans, and then package them into groups of similar loans (securitizing) and sell them on the secondary mortgage market or service them. So FHA being short does not directly effect money being available for buyers to buy houses.

FHA insures loans which meet their guidelines. Like any insurance company, they have to maintain a reserve to make payouts should there be a larger number of payout events than expected. If car crashes go through the roof, Geico has a reserve to cope with that increase in payout. FHA has a reserve to provide payouts to lenders who's FHA insured loans are defaulting.

If FHA falls below it's 2% reserve requirement (ie. it has reserves equal to 2% of the value of all mortgages it insures) it will because (a) it is paying more out of that fund that it expected and (b) it is insuring more and more loans. We all know that (b) is true because of many first time buyers using the lower down payment requirements to get into homes. And that means FHA is collecting more Up Front Mortgage Insurance and more Monthly Mortgage insurance which can go back into it's reserve fund.

So it could recover in 2-3 years, as the FHA Commissioner has implied - I guess it just depends on what happens in the market over that time, and where the FHA's income can sustain it's outgoings.

Have a great weekend everyone. Let's sell some houses, do good quality FHA loans, and work our way out of this crisis.

"Second, he will propose that lenders also take responsibility for any losses due to fraud committed by the mortgage brokers with whom they work."

I agree with this 100%. There is still too many brokers out there with the ability to fudge the numbers to make a deal work. The only issue I see is that many brokers can close up shop one day and reopen the next and this is the thing that needs to be stopped, in my honest opinion.

Accountability. We, as agents are held to a higher standard that most others in our business and I don't understand why. Hold everyone in the transaction accountable including the appraisers and home inspectors.

I am scared now. I was already worried about Dec-feb. Now I'm just plain scared. FHA funded 98% of the transactions we have closed this year.

Thank you for the post!

What will be the effect on FHA Streamline K loans or renovation loans? Those are the ones I am dealing with the most. Curious...

One more blow to the mortgage industry AND to American homeowners. Since housing, housing, housing is the key to our recovery, this news of the end of FHA streamline refis is very bad. Refis are hard enough to get done now and wih FHA borrowers needing cash that will mean more homes becoming less affordable, more defaults, etc. and the wheel keeps turning in the wrong direction. Thanks for your article.

There is still too many brokers out there with the ability to fudge the numbers to make a deal work.

That's impossible Russell. Mortgage brokers originate loans; lenders underwrite and fund them.

WOW!! this is unfreaking real I guess we are not out completely out of the recession sounds like a another bubble ready to burst I guess Bernanke was wrong or FHA did not get the memo on Monday that the recession is likely over

Someone requested data on FHA data showing how it has impacted downturns in the RE market... Send me an email and i will send it to you. ted@tedcanto.com

Key Phrase From:

http://finance.yahoo.com/news/Govt-home-loan-agency-faces-apf-2908284556.html?x=0

"But the agency has faced concerns on Capitol Hill that it will soon need a taxpayer bailout. As of this summer, about 17 percent of FHA borrowers were at least one payment behind or in foreclosure, compared with 13 percent for all loans, according to the Mortgage Bankers Association."

And from:

http://online.wsj.com/article/SB10001424052970204908604574334662183078806.html

"Herein lies the problem. The FHA’s standard insurance program today is notoriously lax. It backs low downpayment loans, to buyers who often have below-average to poor credit ratings, and with almost no oversight to protect against fraud. Sound familiar? This is called subprime lending—the same financial roulette that busted Fannie, Freddie and large mortgage houses like Countrywide Financial."

Best Wishes.....

After reading all the bantering back and forth, I think it still comes down to qualifying your buyers and working with a financial professional to get it done right. Unfortunately, some buyers can not qualify, it just a fact I think we forgot for a while.

Money is never an issue with our government....they'll either take more of mine and yours or they'll simply print more. No problem!

Ted - Thanks for the post. It's good information (even though it was a little alarming at first).

Simon - Thanks for putting it all into perspective!

One point, Paul. There is oversight with FHA loans to protect against fraud. Fraud in FHA loans is investigated by the FBI, and prosecuted. Also, FHA requires that legal residency be properly documented. I am aware of several individuals currently in prison for fraud in FHA loans. Can't say the same for fraud in sub-prime loans.

I for one don't object to loans being made to people with less than perfect credit and small down payments. The problem with sub-prime financing was underwriting guidelines that allowed, and encouraged, borrowers to have fake jobs or incomes (if jobs at all), no down payment, low credit scores. I think FHA has a beneficial place in the housing market for those who are able to make their payments.

Valerie

One more learning experience. Thanks Ted.

Valerie,

Just quoting from the Wall Street Journal...I did not say it.

But....When there is no skin in the game and home values drop 10%+, a tiny blip in somebody's income creates decisions not beneficial to housing.

......As evidenced by the 17% of FHA lendees at least one payment behind VS. 13% for all loans as reported by the Mortgage Bankers Association.

You need to look past real estate to see the real problems such as Savings to Debt Ratios. Once you understand this relationship... you'll see that it's not FHA loans or $8000 tax credits that are going to save home values...home values created from too much debt and too much easy credit.

Ted:

Thanks for the information. I wonder who are the anonymous people on this post who don't have the guts to say who they really are? I know!!! It's probably Kanye West making an ass out of himself. Show your face Kanye?

LOL.. Carol.. They are definitely are up in that ladder of jerks along with Kanye spitting in their ear. Good one! * Paul from Vegas-I do agree that is a sound part. *Jon Markley- I LOVE YOU MAN!

I hear FHA is adopting HVCC, is that true? Also, I know the rumor that you and I heard today but i checked on the FHA site and see no mention of the 90 day FHA rule being temporarily lifted.

Hi Ted~ Thanks for bringing this to our attention. I can't believe how much I learn here in the Rain!

Hi Ted, I agree with you, I read similiar comments that FHA will have financial difficuilties in near future.

There isn't a thing we can do about it except insulate ourselves against it. I'm involved with another company that is enjoying a 200% growth rate, is partnered up with multi billion dollar corporations, has realtors, mortgage brokers, and other high doller professionals joining them at record pace, and has the best pay plan in the industry.

That is what I'm doing to offset this negativity in the housing market. I can't fix the industry or the economy, but I don't have to go along for the ride either.

Ray Logan

Century 21 Elite

Jackson, Michigan

Why do people think 100% financing or very low down payment financing programs lead to more defaults? Seriously, lets get real. If someone is at 85% LTV or 96.5%, or even 100% and lose their job neither one can refinance. All can sell.

It's not the low down payment that makes default more likely, it's the fact that peole don't have reserves to carry themselves for 2-3 months while they find another job. I bet if FHA allowed 100% financing but required 2-4 months reserves there would be fewer defaults. What good is it to have 10-15% equity in a home when you need to make a mortgage payment and you don't have a job?

Someone at 96.5% LTV doesn't freak out about losing 3.5% down payment if they can't make a payment. It won't motivate somone more to go find a way to make that payment. Look at me. I put $50K on my down payment (80% LTV) 5 years ago and now I'm at 150% LTV. I am no more moitvated to save my home if I can't make a payment then if I put nothing down. But if I lost my job right now I would have $50K to carry me to make the payment until I find another job.

I can't stand to hear another person saying low down payments are a primary reason for defaults.

This is not much of a shock, although I wish it was. When the Sub Prime market went out like a match in a rain storm everyone looked to FHA as the new Sub Prime. So why is it a shock that the rate of defaults is as high as it is? Until the number of people employed starts to increase instead of decrease these numbers will not change. Also remember that the unemployment rate does not take into account people who lost an $80K job and replaced it with a $25K job or worse.

Yet after spending more money that has ever been spent the currernt government hasn't created any new jobs except for the Czars that fill the west wing of the White House. This is not a knock against Obama or his administration. It is a comment on the severe flaw in our entire government. They think that they can control the free market, they can smother it, but they can't control it. Government cannot create wealth, only redistribute which others have created. Or print money non-stop until it has no value at all.

If the FHA needs more money they will just have to raise interest rates on the bonds they sell until they can garner interest in investors. Which in turn will raise mortgage rates, which in turn will make Congress whine and cry about affordable housing, which will make Congress do something more stupid than the things they've done in the past.

Do we see a patern arrising here??

Brad,

Amen! Well said.

So the FHA health is dependent upon wishful thinking? Without FHA this market will tank even worse. I suspect Obama and company will just switch on the printing press.

Ted, don't scare the active rain people! Did you know you showed up at the top of the blogs ? Anyway there is absolutely no way NO WAY that Obama will allow FHA to run out of money!! FHA has had tough times in the past and has always been bailed out by Uncle Sam...I hope the other people who commented on your blog read this. To them I say...hey guys keep your heads up !!!

I might not have a crystal ball! With 25 years of originating loans , the ball hasn't arrived on my doorstep as of yet. However, please check out my blog that I wrote about a year ago on my opinion of what was going to happen to the Mortgage and Real Estate Industry...I had the crystal that day!!

Again, those who stay in, will survive. I am justing getting a little too old to stick around though...

Tony

SEP

This is such a scary prospect. As was waid earlier... No more bad news! Unfortunately, that is not up to us. I hope that those to whom we trust our lives and careers, I hope we can get our act together and build a future we can all be proud of.

FHA has been through times like this in the past. What they usually do is change the MIP. Default rates on FHA sky rocketed with the advent of Ameridream and Nehemiah. At the same time those programs were outlawed, the real estate bubble burst and unemployment went thru the roof. FHA will change a little but it will be fine.

What really scares me is that Barney Frank wants to be appointed Secretary of HUD. THAT will be a crises.

Oh Boy Ted. Great reading. A lot of information, pro and con, just the reason I love checking these featured post. I think you did a great job. Thanks for posting. Very educational to say the least.

I am going to have to come back when I have time and read all of the comments as it sounds like there is much more to this than you wrote about. Thank you for getting the dialogue going!

Since the demise of the sub prime market, I have always viewed FHA as the next mortgage crisis. Some, not all, people who got subprime loans and have defaulted were homeowners that should have remained renters until the saved some money. Although the rapid downturn in the economy including job loss expedited the situation, home ownership is a responsibility some are just not ready for. FHA has just replaced sub prime loans as another avenue to make this very specific group of people glorified renters. When they cannot pay their "rent" anymore they just want to ditch the property.

Having said all that, I do believe it is a good program when used correctly.

Wow. That is amazing! Countrywide is on that list, I see.

Wow Ted. I guess that the FHA people are now wising up a bit.

Wow. You sure sparked some controversy here Ted!

We must remember that over the last 2 years FHA has experienced jumps in producition numbers higher than they have seen in years. Combine these numbers with desperate homeowners, mortgage brokers/bankers, foreclosures, tighter lending guidelines and we find a HUGE increase in loan fraud. FHA MUST make appropriate changes to remain in the game. I applaud the changes, (although it willmake our jobs more difficult, and like we needed THAT) but in order for us to continue to have a product for our borrowers that actually DO qualify for a mortgage we must hang tight and allow for the bad seeds to be weeded out (again).

This product WILL continue to be available, and I believe WITHOUT government bailout!

SEP

Another fine mess you have gotten us into, Ollie! Mu, mu, mu.

Thanks for the post Ted. FHA has always been a fantastic alternative to conventional lending. I work at a Brokerage that refuses to get FHA licensed. In my mind that is Lending suicide. I am however an expert at VA Loans and that is what has carried me through the craziness. I would advise all Real Estate professionals to ask their potential clients if they have ever served in the service. Ted one thing I don't understand is why the FHA loan guidelines become harsher. It is a full qualification program. IF we look at he over all default rate wanst 95% of the mess caused by subprime crap?

WOW! So many different responses. I didn't know this was going to spark such a large response. For the most part, I will agree with many of you that this will be sorted out and that FHA will be fine in the end. However, it was worth posting as we all still have lots to learn in the way we move forward as an industry. We should focus on sharpening our skills and improving on the integrity of our community. For those that are out there doing funny stuff, be aware and be VERY SCARED!! You will not last and you just might find yourself on the street or in jail.

By the way, I wanted to provide everyone with this chart. The chart tracks FHA loans in relation to the downturns in our market since the 1980's. In fact the pattern has been relatively the same since the Depression. So you understand what you are looking at, when charting the conventional loan line, the downward spikes is a reflection of our economy (down means down). At every downward spike you will see FHA moving upwards. As the FHA line charts upward you will notice Conventional begins to follow then FHA falls off as the economy gets better. I teach a class on this and it is quite interesting to say the least on how FHA has "HISTORICALLY" been such a great program to our country and our industry.

Any ideas what might happen to the manufactured home industry if FHA ran out of money. Presently the lions share if not nearly 100% of all Manufactured Home loans are FHA if not VA, guarneteed. Our company www.onthelevelcontractors.com does the engineered certifications and foundation retrofitting and inspections on manufactured homes throughout the USA. If FHA goes down so do we in a heart beat.

Did you read the entire letter that Dave Stephens sent out? Here's an excerpt;

"To be clear, the fund's reserves are sufficient to cover our future losses, so the FHA will

not require taxpayer assistance or new Congressional action," said Commissioner Stevens.

"That said, given the size and scope of the FHA and its importance to today's market, these risk

management and credit policy changes are important steps in strengthening the FHA fund, by

ensuring that lenders have proper and sufficient protections."

Wow, and we want to do FHA loans right now since we can still use our own appraisers and not the stupid HVCC appraisal fiasco.

SEP

I wouldn't worry too much about it in the short term. I'm sure that the current administration will just print up some more money and dump it into the FHA reserve account. All is well with the world...well, at least until the dollar becomes worthless, inflation goes through the roof, and China stops lending us money. But until then...all is well with the world...

SEP

Tighter loan restrictions = less loans = less houses sold for us. Ugggg........

NOV

Yes, this is not good news. FHA is the mainstay of 1st time homebuyers.

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