|FHA: Learning the Facts||
Today we are going to learn a little bit more about FHA and give you some facts and do away with the myths. FHA is a pretty common loan insurance program out there. In fact, it has provided homeownership to more than 2.8 million first time homebuyers in the last four years. FHA was created in 1934 to provide access to safe, affordable mortgage financing for American families. FHA does not lend money to homeowners. Instead, FHA insures qualified loans made by private lending institutions. Without FHA, millions of Americans would be without home ownership.It truly would be a blow to the real estate industry and the American economy as a whole.
There is a lot of misinformation that the FHA is bankrupt. It's not. In fact, FHA’s current cash reserves total $30.4 billion. FHA is one of the few entities required by law to hold reserves for claims over a 30 year period. In contrast, private financial institutions to hold reserves for losses over the next 12 months.
The FHA has incurred financial losses like every other mortgage holder, but they don't have an abmormal amount of foreclosures or defaults. Defaults peaked in 2008, but loans since 2010 are performing well.
Many people believe that the FHA has a high market share. The truth is that FHA originates 15.78% of all loans. Once the housing market stabilizes, then their market share will decline.
Many people believe that FHA lends money. They don't. They just insure the loans made by the private market. The FHA will not insure loans over $729,750.
The one question I get asked all of the time is that FHA only takes on poor risk borrowers. That couldn't be further from the truth. In fact, the average credit score for borrowers in 2012 was 700 and more than 30% of FHA borrowers had credit scores above 720.
Of course, there are fees involved with the FHA to cover their risks. The upfront premium is 1.75% with an annual premium of 1.25%, which is paid monthly. However, the annual payment is suppossed to increase to 1.35% in the near future.
The FHA continues to be vitally important to getting potential buyers into homes. It's a very great program, so please let me know if you need more information on it.
This will be our last blog post for the year. However, we will continue our market reports through the holidays.
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