Can FHA Mortgages Bail Out California?
June 28th, 2007
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Speaking in Los Angeles on Monday, HUD Secretary Alphonso Jackson said FHA loans in that state had fallen 98 percent in seven years, from 131,000 FHA loans in 1999 to just 2,500 in 2006.
Quoting statistics from RealtyTrac.com, the country’s leading source of foreclosure information, Jackson noted that “139 of California’s ZIP codes fell within the top 500 for total foreclosure filings in the U.S.”
“California would benefit from FHA reform,” he said. “Since 1934, the FHA has helped more than two million families in California purchase and maintain their homes. Unfortunately, as the lending industry has changed through automated underwriting systems, risk-based pricing, and other new products, FHA has been taken off the table for most Californians. Few home buyers in the state have been able to use FHA financing. The FHA loan limits, which range from 200,000 to over $362,000 in California, are not high enough to meet the cost of most homes in the state.”
While Jackson makes a fair point, the problem is that with so many foreclosures you can bet that many California homeowners do not have 3 percent equity in their properties because they bought with nothing down when values were higher. You can also bet that a large number of California loans were completed with “stated-income” loan applications and not the more-rigorous (and responsible) full documentation forms required under the FHA program.
In other words, many loans in the past few years passed muster because borrowers and lenders avoided traditional underwriting standards. For many of those borrowers, it will may not be possible to get new financing under the more stringent standards required for FHA loans. That’s a shame, because many borrowers could avoid foreclosure with FHA mortgages.
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August 15th, 2008 at 4:56 pm
I have been making my payments, the last year I have been using my retirement to get by, I am getting further in debt and my house is worth 150,000 less than ibought it some three years ago. I have tried to get my morgage company to lower my intrest rate but they refused. I need help!