This matter needn't be so complicated. FHA is not a profit/loss center. It is an INSURANCE backed finance program.
FHA insurance costs should reflect ACTUARIAL risk assessments.
I remember when the FHA fund had a surpluss. Congress saw it did that at which Congress excels, GRABBED THE MONEY and started tinkering with the rates.
It was only when Congress stuck their incompetent noses in the FHA insurance rates that it went into deficit.
Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988, serving home buyers in Loudoun County, Va.
It is official, the FHA will draw money from the Treasury, or in common terms, will need a bailout. This Federal Housing Administration, FHA, has helped many realized the “American Dream” for over 79 years. And although throughout its history, this institutions has had a stellar performance, this week, the government will have to inject a billion dollars to keep it going. Many reasons have been put forward as the causes of the shortfall, but two reverberate: reverse mortgages and loose requirement standards during the 2006 - 2009 boom-boost housing period. The agency increased mortgage insurance premiums and tightened the reverse mortgage requirements (last week HUD made official the new HECM qualification requirements).
The FHA was established as a results of the melting baking system during the great depression through the National Housing Act, 1943. Homeownership increased as a result of government insured mortgages since then; the program sponsors that help first time homeowners and small down payments, as little as 3.5%. In the last decade, the FHA contributed to the economy’s recovery “by ensuring millions when private capital fled.”1 Today, the agency insures over 1 trillion worth of mortgages, about 15% of the U.S. Loan origination.2 But many argue that the agency has devolved into a prime lender of sorts.
During the 2006 - 2009 boom-boost subprime lending crisis, the agency loosened mortgage qualification requirements, and the high rate of default from these loans are lashing back. Many of these loans were insured through the reverse mortgage program HECM. But the agency has taken action to prevent further financial deterioration; insurance premiums were raised, and last week, HUD officially announced tighter qualification standards for the reverse mortgage program. the original deficit was $16 billion, but increase in home prices coupled with higher premiums has narrowed the gap to 1.7 billion.
Although the agency has taken steps to improve its financial performance, last month, HUD enabled foreclosed homeowners to qualify for a mortgage in as little as 12 months. I fear we face a conundrum. It is a no brainer that we need the FHA; and aside from helping first time home buyers, helping higher risk borrowers has contributed to the strengthening of the economy. But are they fueling another lending tower with a poor foundation? Many lawmakers propose that the FHA go back to its original mission. One way or another, Congress will decide for us when bill H.R. 2767 is up for vote.
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