We need to ABOLISH FHA Loans!!!!

Reblogger Jeanean Gendron
Real Estate Agent with The Address Realty BRE#01299346

Jeff Belonger is helping us to understand what is going on with FHA mortgages. I will be re-blogging a number of his post going forward for my clients. This is important information to understand for our real estate market on a national basis. Thanks Jeff.

Original content by Jeff Belonger

 

FHA LOANS need to go !!!!

 

confused with many FHA loan questions

FHA loans need to go....  so many defaults... GROWING by the thousands. If we don't kill FHA mortgages now, the economy will crumble. Sound confusing?

 

Okay Jeff, have you flipped your lid?  NOPE - I had written this blog last week, FHA loan rumors have become a reality. Because of this post, I have seen a few comments stating that we need to abolish FHA loans. Here are some comments in regards to these FHA changes in general...

"The FHA is basically bankrupt since they haven't figured out that making loans to people with lots of debt and practically no money isn't such a good idea."

"What continues to frustrate me is that all these government bank bailouts, loan purchasing, Fannie Mae and Freddie Mac guarantees, FHA expansion, tax credits, etc. are doing nothing more than temporarily artificially propping up the real estate market.  The government cannot continue with these policies and the result will be another drop when they stop."

"When just putting 3.5% down, the borrower is already underwater from day 1, because it costs more than 3.5% to sell a home. This does not factor well in a declining market. Homes purchased with FHA mortgages will experience lots of foreclosures and short sales. FHA loans need to be abolished."

"Sounds like FHA doesn't want to loan money because of these changes."

 

 

 

First off, I agree that we need to stop artificially stimulating the economy. I wrote about it here : The Welfare Mentality of the Tax Credit   We could spend a whole day just on this topic alone. But let's dig deeper in the comment that we should abolish FHA loans and to why we need to understand FHA and review some facts, not opinions of fear.

 

 

fha loan mortgage library

 

Quick History Lesson :

FHA was established in 1934. (directly from wikipedia) "The goals of this organization are: to improve housing standards and conditions; to provide an adequate home financing system through insurance of mortgage loans; and to stabilize the mortgage market."

Please read the rest of this, FHA being born, and how banks restructured loans and why FHA was brought into the mix after the banking system failed during the Great Depression.

 

 

 

 

Economy crumbling

The Economy has been crumbling.

Sorry people for negative news, but this is a reality. If we ABOLISH FHA LOANS, what do you think will happen?

Let's look at why some say we need to kick loose FHA mortgages.

  • Thousands of more FHA defaults in the last year.
  • Thousands of more homes with FHA loans have defaulted.

Let me ask you all this question... FHA has been doing pretty well up until the last 3 years. hhhhmmm.. just about the same time when the economy started crashing. Think about this before pointing fingers.

 

 

 

Now, let’s look at the reasons to why this might be happening more, why FHA loans are defaulting at a much higher rate than ever before.

 

  • FHA Market Share - FHA has gone from about a 14% market share 5 years ago to about 40% just in the last year. This alone should be a no brainer to why we have see so many more defaults and foreclosures, especially in one of the worst and most challenging economic eras ever.
  • Subprime loans disappearing - When subprime loans basically left the mortgage market 3 years ago, the next thing in line was FHA loans. How many times did you see a realtor or loan officer write that FHA loans are the next Subprime loans?  Rut row...
  • Fraud - With many of these loan officers that focused on Subprime loans, some that pushed the envelope by committing fraud, this moved in the FHA sector. I have even heard loan officers before say that they placed a borrower in a subprime loan over FHA because it was easier for them, not the borrower.
  • FHA DE Underwriters - Delegated Underwriters that can approve FHA loans have grown by an astounding number in the last 3 years. We have seen this number multiply 4 times over. This means many new underwriters that have no experience or the knowledge, make more mistakes, and who have their owners pushing them to make more loans at times. Yes, this happens. HUD needs to crack down on such lenders. Brian Anderson wrote about this : HUD terminates 3 lenders ability to originate FHA Loans

 

 

 

 

Summary :  I am not a big fan of government bailout. But there are times that we need to do this. What Mr. Bernanke did in the 3rd quarter probably saved our economy from a true collapse. (If I could interview Mr. Bernanke) 

Overall, yes, I partially blame HUD for allowing some of this to happen when it comes to the FHA capital reserves falling below their 2% cushion. You can't tell me that they saw this coming over a year ago? Why wait to the last minute? Maybe because the government doesn't want to cast fear so early, because we like to curb all negative news and fears, giving the general public a sense of security. But what about one of the biggest issues, to why even FHA loans are taking a major hit.

How about the ECONOMY in general. How about UNEMPLOYMENT. Isn't this affecting all mortgages?

Shouldn't this be taken into account to why we have so many FHA defaults?  Sure, I think HUD needs to make some changes, which has happened. I wrote about it here. New FHA changes & the Mortgagee Letter - Make your VOICE heard.  But we can also let our voice be heard in regards to some of these changes, so please read my blog post.

 

The ending result?  We need FHA loans… if we take this away, the REAL ESTATE MARKET will crumble and might not exist.

For those that might be semi lost on my opening statement.. I NEVER think that FHA loans should be abolished. I was trying to get my point across to what others have been saying. My beginning statement was an attention catcher. 

thanks

 

Ken Cook wrote this post - Dispelling Myths about FHA mortgages - Please read the 3rd paragraph about default rates.

 

Is Fannie Mae & Freddie Mac on Death Row?  by Esko Kiuru - We need to pay attention to what is going on around us...

 

 

follow Jeff Belonger on Twitter               The FHA Expert     

                                                                                               FOLLOW ME ON FACEBOOK

 

 

- FHA Loans - USDA Loans - VA Loans -

- Energy Efficient Mortgages - 

- Conventional Loans - 203 k loans -

- Mortgages -

 

Experience & Knowledge at its BEST !!!

 

 

_________________________________________________________________________________________

For more information on FHA loans, please go to this link. The FHA Expert

For more information about the 2009 Tax Credit for First Time Homebuyers : 2009 Tax Credit

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

HUD

 

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc

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Rainmaker
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Lisa Coates
Level Ten Construction Consultants - Halifax, NS
Residential Home Sales Specialist

Jeanean, This is the first time I've read one of your posts. Wow the passion and energy is amazing as is the content. They say two great minds think alike...I have one - you have the other. I didn't have the time to read all the other posts you referred to, but I think you wrote a very unbiased blog with honesty and integrity. Keep up the good work. Lisa

Jan 29, 2010 02:09 AM #1
Rainmaker
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Elizabeth Weintraub Sacramento Realtor Top 1%
RE/MAX Gold - Sacramento, CA
Put 40 years of experience to work for you

My parents bought their first home in 1955 using an FHA loan. The guidelines and FICO requirements that are in place help to protect against defaults on FHA loans, so no, I don't think we should abolish them. We need them. Home buyers need them. It makes about as much sense to absolish FHA as it does VA. And VA requires no downpayment whatsoever.

Jan 29, 2010 02:19 AM #2
Rainmaker
575,553
Terry & Bonnie Westbrook
Westbrook Realty Broker-Owner - Grand Rapids, MI
Westbrook Realty - Grand Rapids Forest Hills MI Re

Like anything in excess too much of anything usually is not good we do need stronger underwriting on FHA loans but we need the program.

Jan 29, 2010 02:08 PM #3
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Jeanean Gendron
The Address Realty - Redding, CA
Specializing in Selling Unique Properties

Lisa, this is a Re-Blog of Jeff Belonger's post. He is the passionate one. He is my "Go To" person when I want to know about the Mortgage Industry and what's happening. Check him out and subscribe to his blog.

Jan 31, 2010 01:11 AM #4
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Jeanean Gendron
The Address Realty - Redding, CA
Specializing in Selling Unique Properties

Elizabeth, it does seem radical, however if it is creating flux in the market, we would need to correct it for sure. I just think people need to be aware of the market conditions and how it affects them. Jeff's posts always help us do that!

Jan 31, 2010 01:12 AM #5
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Jeanean Gendron
The Address Realty - Redding, CA
Specializing in Selling Unique Properties

Terry, I'm pretty sure most everyone feels similar. But it is a good idea to understand the dynamics going on currently in the mortgage market!

Jan 31, 2010 01:13 AM #6
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