SHOULD FHA BE THE ONLY GAME IN TOWN? Nearly every time I think of FHA, the thought creeps into my mind that there is something wrong with this picture.
With housing being in the dumps, Fannie and Freddie tightened up guidelines by increased fees for credit scores, loan to value, occupancy, property type. A long menu of changes along with most importantly requiring the use of Appraisal Management Companies to order appraisals.
FHA, which had sunk to a low level of usage over the last few years because of all the options available with a conventional loan, has risen up as the go to loan. I believe, this primarily due to the fact that up until March FHA did not require a blind appraisal ordering process. While conventional loans were taking a beating at the hands of the appraisal, FHA was getting a larger share of the market.
Now FHA is requiring a blind appraisal order. They are increasing the up front mortgage insurance premium. They talk of increasing down payment requirements. No doublt we will see FHA evolve into a different product than it was a few months ago. I wonder is it soon enough?
The question in my mind is how much damage has been done to the health of our economy and to taxpayers due to increased foreclosure numbers on FHA loans that were originated over the last year when FHA became the only game in town. FHA as a rule is available to borrowers with lower credit scores, higher debt ratio, and fewer assets, i.e. the term "no skin in the game".
I'm not convinced this is the economic environment to "pile on" by doing riskier loans for which the taxpayers are ultimately on the hook. Fannie Mae and Freddie Mac were bailed out by the government, but they are not government programs. FHA IS a government program.
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