The FHA Bailout?? Congress is good at two things, Bailouts and Money Grabs.

By
Real Estate Agent with Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate 303829;0225082372
FHA SUFFERS FROM ONE THING, CONGRESSIONAL TINKERING!!

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.

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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).

FHA bailout

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.

FHA conundrum

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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1http://www.marketwired.com/press-release/keep-fha-and-the-american-dream-1835247.htm

2http://www.bloomberg.com/news/2013-09-25/federal-housing-administration-said-to-take-taxpayer-subsidy.html

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Rainer
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Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Lenn.  It is a no brainer.  Base everything on a actuarial tables.

Sep 29, 2013 08:13 PM #1
Rainmaker
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Jay Markanich
Jay Markanich Real Estate Inspections, LLC - Bristow, VA
Home Inspector - servicing all Northern Virginia

Chaos is the goal.  It's always the goal of the community organizer.  The reason is to fix the "problem" so they can hire more people to control more people.

Sep 29, 2013 08:17 PM #2
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Conrad.  That is a sound principal. 

Jay.  Right you are.  Sound practices don't require conflict or sides.  It's simply having guidelines and following them to qualify and not everyone will.  The tinkering was to enable anyone and everyone to qualify.  Not very sound.

Sep 29, 2013 08:41 PM #3
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Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Lenn, I never though reverse  mortgages were a sound practice. It just makes no sense to my pea brain, seems to be frought with issues. Especially as home prices started to tumble. And it isn't that I don't like the idea of people getting to stay in their homes for as long as possible... but the concept just never made financial sense to me. Not from a lenders perspective anyway. And I will not say a word about looser lending standards, why should I bother?

Greed, that is why we are where we are.

 

 

Sep 29, 2013 08:57 PM #4
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Ginny Gorman
RI Real Estate Services ~ 401-529-7849~ RI Waterfront Real Estate - North Kingstown, RI
Homes for Sale in North Kingstown RI and beyond

I've been challenged to having tomatoes thrown at me by saying tighter lending standards need to be an continue here... you don't continue to give loans to borrowers who don't know what managing finances is about...oh, FHA falls into this category too.

Sep 29, 2013 09:00 PM #5
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Kathy Streib
Room Service Home Staging - Delray Beach, FL
Home Stager - Palm Beach County,FL -561-914-6224
Lenn- let free enterprise and business do what the know how to do. Things will fall into place. Of course, it is then that leaders feel they should step in to look as if they're doing something and justify their existence. That's when the ship runs aground.
Sep 29, 2013 09:24 PM #6
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Lenn Harley
Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Andrea.  Sound practice or not, a reverse mortgage was always in my long range plan.  Oh well.

Ginny.  Indeed, yet the ones responsible for poor lending practices keep getting re-elected. MMM.

Kathy.  Or, lenders have to follow Congressional mandates which make no actuarial sense.

Sep 29, 2013 09:40 PM #7
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Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Lenn, for the consumer it was a great idea, not saying that. I just don't understand it from the lender point of view. Why it would be a good idea for them is beyond me. But it just seems like free money for the consumer. And of course it is a way to make sure you spend as much of your money and assets as possible before leaving this world. I remember reading a book that says your goal should be going out with nothing left. Spend it and enjoy!

But again, I am talking about the business side of it. I just don't get it. My aunt took out a reverse mortgage, the details are all very sketchy because no one, including the lender, can find the documents, but now she is stuck in her house. And there is no monthly money coming in for her.

I admit to not knowing the details... but from what I can gather it has become a nightmare. And by the way, I don't want to know the details... LOL.

Sep 29, 2013 09:51 PM #8
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Jill Penman
ONE SOTHEBY'S INTERNATIONAL REALTY - Coconut Grove, FL
Coconut Grove & Coral Gables Lifestyle Expert!

Hi Lenn - it seems to me that we are going backwards instead of forwards.  Isn't looser lending standards what got us into the conundrum in the first place?

Sep 30, 2013 01:43 AM #9
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Dick Greenberg
New Paradigm Partners LLC - Fort Collins, CO
Northern Colorado Residential Real Estate

Hi Lenn - It has been a long time since any insurance business had to bother with actuarial risk assessment - regulators have, for quite a while, allowed them to increase rates to maintain a desired rate of return, so should they miss on their projected losses, or even worse, make bad investment desicions with their reserves, they will suffer no consequences. It will all fall on either taxpayers or customers, with no accountability for bad decision making.

Sep 30, 2013 02:42 AM #10
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