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FHA Loans — Will They Come Back?

by Peter G. Miller
May 23rd, 2007

It wasn’t too long ago that the FHA mortgage program was just about dead. While some 1.5 million loans were originated under the FHA program in 2003, by 2005 loan volume was down to 555,000 mortgages.

But now there is new hope for the FHA financing. What’s really happened is that borrowers (and lenders) have shied away from FHA financing because the alternatives “seemed” so much better. Why pay 3 percent up front when financing with zero down was available? Why produce a bunch of tax records and other documents when you could just use a “stated income” loan application and estimate earnings? And why make monthly payments to pay off a loan when many loan programs allowed you to “save” cash and just pay interest for a few years or maybe even less than interest.

Now “nontraditional” loans are coming back to haunt borrowers — and even lenders. It turns out that toxic mortgages and no-tell loan applications are not such a great idea if your goal is to avoid foreclosure. And if you have small loan payments up front that turn into large ones down the road that can be a problem if nothing else is affordable.

So now a lot of folks with nontraditional financing are beginning to think about refinancing into an FHA loan. For those without equity, for those who cannot document their income, FHA financing will be off limits. But for many borrowers, it turns out that tired, boring FHA financing is a pretty good idea — especially when you consider the alternative of huge monthly payments and too many foreclosures.

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This entry was posted on Wednesday, May 23rd, 2007 at 5:23 pm and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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