November 18, 2009
FHA Losses: What it Means
What Do They Do
FHA loan options make it easier to qualify for a home mortgage. Your loan is guaranteed by the government, making your application more attractive to lenders.
The FHA mortgage requires a low 3.5% down payment, and that money can come from a variety of sources including HUD down payment assistance grants. Typical closing costs for FHA home loans are around 2% or 3% of the total mortgage.
Loan Loss is Below Govt Mandate
Its capital reserves have fallen below the threshold mandated by Congress. The FHA has no recourse but to find ways to reduce their portfolio risk. Generally, when an investment portfolio needs to lower its risk profile, it means that requirements will tighten and costs will rise until the risk profile is better balanced.
What it Means To You
Harder to Qualify
The FHA is considering a variety of changes like requiring larger down payments for FHA insured mortgages, demanding higher credit scores and raising mortgage premiums. The FHA has taken on an enormous role in the marketplace. It dominates the new mortgage business. The FHA is one of the tools the Obama administration is using to take up the vacuum left by the banks. Generally, they are not lenders of such magnitude. In the second quarter, nearly 50% of all first-time buyers in the market used a loan insured by the FHA (via cbsmarketwatch.com).
Normally, a low risk lender because FHA home loans have income requirements, maximum loan amounts and most loans are 30 year fully amortizing fixed-rate mortgages. But the FHA has had its neck out since the housing crises began. They like many other Govt institutions are filling the gap left by private lenders. And will continue to do so until the market normalizes, but it clearly is taking a toll.
Thanks for Reading
Posted by Howard at Wednesday, November 18, 2009