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.
FHA LOANS need to go !!!!
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.
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."
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.
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...
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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!
Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc