The Federal Housing Administration was created in 1934 as part of FDR's "New Deal" in an effort to the lift the country out of the Great Depression.  At the time, the U.S. was in the midst of a credit crunch and a housing crisis.  Mortgages were very difficult to qualify for, were limited to 50% of the home's value -- and were Balloon loans due in 3 -5 years.  FHA changed all that by insuring mortgages, thereby making the Dream of Homeownership ATTAINABLE to most Americans.

Up until a couple years ago, the program was oftentimes relegated to an option of last resort because of extra regulation, excessive paperwork, cumbersome appraisals, and drawn-out processing and underwriting.

Much of that changed in December of 2005 when the program was revamped, the Automated Underwriting System was improved, and the appraisal standards were relaxed, making the loan much more Realtor, Borrower and Lender friendly. 

FHA continued to gain popularity through the use of Seller-Funded Non-Profit Down-payment Assistance Foundations such as Nehemiah, Ameridream, and The Genesis Foundation.  These organizations take donations primarily from property sellers and give grants for down paymentsto homebuyers.  Through this process, over half a million families have been able to purchase a home when it otherwise would have been impossible. 

While a boon for the lenders, homebuyers and realtors, FHA moved to quell the downpayment assistance (DPA) frenzy in the spring of 2007.  The DPA industry sued, and an injunction was granted, allowing them to continue business as usual.  A final ruling was expected by February 29, 2008, but no news yet.  I've been keeping an eye out for updates, and will post here when I get the news.

Last year, as Throngs of Sub-Prime Lenders went Belly Up, Mortgage Loan Officers once again turned to Government Loans to help home buyers who didn't fit squarely into conforming loan guidelines. 

FHA was a decent substitute because it:

• Had no minimum credit score 
• Wasn't credit score driven for either underwriting or rate,
• Has a low minimum down payment (3%) that could come from a variety of sources
• Has flexible debt-to-income ratios 
• Can be manually underwritten --  one of the few loan programs that gives underwriters a large amount of discretion in evaluating borrower's likelihood to repay the loan.

Because of the enormous increase FHA loan volume (Flagstar's FHA volume has increased over 1000% in the past 12 months!) from credit-challenged borrowers, many lenders have instituted minimum credit scores and risk based pricing.  One lender, for example, has a 550 minimum credit score to do an FHA loan, and will charge a slightly higher rate for a score under 600.  This wasn't the case in the past, when with strong compensating factors, an enterprising loan officer could legitimately justify to an underwriter why a borrower with a sub-500 credit score should be approved.

The government has been quick to roll out modifications of its program as consumer needs arise: 

·          Summer 2005, HUD announced the FHA 203(h) program for disaster victims in presidentially declared disaster areas.  Waives the 3% downpayment requirement

·          Fall 2007, FHA Secure is announced as solution for borrowers experiencing difficulty because of payment shock from a resetting adjustable rate mortgage.

·          Special Incentives for FHA financing on HUD-Owned properties.  $100 Down, $2500 towards closing costs, $500 bonus for Realtors

·          FHA loan limits are being increased as of March 15, 2008.  NAR's estimate for Washtenaw is $344,750, for Wayne is 297, 500.

Between the expanded loan limits, flexible down-payment sources, and newly developed programs, the FHA loan programs have in the past, and will continue to be a major stabilizing force in our housing market.  They products continue to evolve with the needs of our country.

For more information on this invaluable program, please contact me.

Mark J. Miller
 Senior Loan Officer
 Mobile:  734.644.1201
 Fax:       866.268.2216
 www.markjmillerloans.com