How Long Can FHA Sustain Their Role in the Housing Market?

Mortgage and Lending with Canopy Mortgage, LLC NMLS 124492

Souring Mortgages, Weak Market Force FHA to Walk a TightropeWhen it comes to home buyers in Northwest Indiana, FHA insured mortgages have become the preferred choice of record. This also appears to be the sentiment throughout the country as FHA insured loans have risen to account for 25% of all mortgages as recently as the 3rd quarter of 2009 according to Inside Mortgage Finance.

FHA has definitely received the lion share of the mortgage spotlight as it has made a precipitous return to the landscape of residential financing since 2006 when it only insured 2% of the mortgage market.

The big discussion today was about FHA's role and ability to walk the thin line of becoming the next big bubble for the real estate industry or the savior of the housing market that Congress wishes them to become. Real estate and mortgage experts across the country were focused on the article Souring Mortgages, Weak Market Force FHA to Walk a Tightrope published by the Wall Street Journal.

There is much debate on whether FHA should or should not be expanded to continue to levy the housing market in 2010.

There are valid arguments on both sides of the line. For instance, many claim that FHA insured loans has been the catalyst that has stabilized and in some markets even stimulated a housing recovery. While others proclaim the growth of looming trouble in FHA's insured portfolio referenced in the chart has become too big and will be too costly.

Here are some key point from the article that have some shaking in their boots:

  • Demand for Higher Minimum FICO Score (i.e. 680)
  • Demand for Larger Minimum Down Payments (i.e. 5%)
  • ~24% Default Rate on FHA Insured Mortgages Originated in 2007-2008
  • FHA No Longer Meets it's Minimum Capital-Reserve Ratio due to Defaults
  • Mortgage Fraud Stemming from FHA-Approved Lenders (TB&W, LendAmerica, etc...) 

Whether you are for or against FHA taking a greater role, FHA is sure to be a part of the residential mortgage landscape for the foreseeable future. The real question of the day should be...

How Long Can FHA Sustain Their Role in the Housing Market?


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Comments (2)

Johnathan Mullaney
Village Land Shoppe - Flagstaff, AZ
Broker, Flagstaff Real Estate

I miss the good ole conventional days, but without the bad loans. I remember before the boom we hated FHA, atleast its better than it was 10 years ago.





Flagstaff Homes & Land: Also see: Green Flagstaff Real Estate, Flagstaff Real Estate Blog: Flagstaff Homes:, Flagstaff Real Estate:, Rural Flagstaff Real Estate:

Jan 19, 2010 09:06 AM
Michele Reneau
Certified Staging Professional (CSP) Elite Instructor - Summerville, SC
Realtor, GRI ~ Charleston, SC Relocation Experts Team

James-I've been waiting for the FHA bubble to burst. Perhaps that is why they are trying to add new proposed guidelines.  My first home was financed via FHA and I wouldn't have been able to do it otherwise.  I remember when I refinanced into a 15 yr loan when equity went up, I got refunded my MIP. That was a nice bonus.  Lots of things have changed with FHA and I think more to come. 

Jan 20, 2010 01:56 PM