I talked to a good friend of mine who originates hundreds of loans every year for a major lender. He doesn't have a team. It's just he and his assistant.
I asked him what percentage of the loans he wrote over the past year (He was the #1 originator during that period) were federally insured loans. His answer? Over 80%.
Some of the loan programs backed by the government are FHA Mortgage insurance (generally first-time buyer programs), Veterans Association Loans and Rural Housing Loans. These loans all have one thing in common -- if the borrower doesn't pay, the US taxpayer picks up the tab.
In contrast to our beloved National Association of Realtors, I will attempt to tell you why these are a horrible idea that is killing the housing market, and our economy.
1) The taxpayer pays if the loan defaults, but investors make the profit if the loan is paid as agreed. Outrageously, these are typically foreign investors. In short, the Chinese government profits if these loans are paid on time, but the U.S. taxpayer pays if they default.
2) These loans require little down payment. There is little reason for a owner to stay in the home if times get bad when he put very little down payment on the home, or in some instances got free federal money for the down payment.
3) More homes are being added to the glut of homes that are already on the market buy builders who use these loans to entice first time buyers into communities in the middle of nowhere.
4) These loans persuade buyers to purchase homes they can't afford. Frankly if they haven't been able to save money when they didn't have to make payments on and maintain a home, how will they be able to handle the increased responsibility?
Most everyone agrees that one of the largest contributing factors of the current financial crisis is making reckless loans to folks who shouldn't have qualified, yet little has changed in this practice when it comes to Government insured loans.
If we ever accept the market to determine home prices again, which is vital for a recovery in the housing market, we must remove the biggest interference in the market. Government backed loans are an extreme burden on the American taxpayer, and our economy and must end.