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FHA Has Lost Market Share. So What.

by Peter G. Miller
July 23rd, 2007

If you’re running a car company, hot dog stand or goat farm then market share is a fair issue: You want more of the market to increase profits and push out competitors.

But is market share an important issue for federal programs?

A report by the Government Accountability Office says the FHA program has lost market share: “the share of home purchase mortgage loans insured by FHA has fallen dramatically, from 19 percent in 1996 to 6 percent in 2005, with almost all the decline occurring since 2001. The combination of FHA product restrictions and a lack of process improvements relative to the conventional market and product innovations and expanded loan origination and funding channels in the conventional market — coupled with interest rate and house price changes — provided conditions that favored conventional mortgages over FHA products. Conventional subprime loans, in particular, emerged as an alternative to FHA-insured mortgages but often at a higher ultimate cost to certain borrowers.”

Wow. There’s a euphemism. That “higher ultimate cost” for huge numbers of subprime borrowers has meant foreclosure, losing a home. A loan can’t get more “costly” than that.

The point is that the FHA program should not be measured of judged on the basis of market share, it should exist merely to fill-in the gaps not served by the private-sector lending system. If the private sector offers viable, attractive products then there’s less need for a federal loan insurance program. If the private sector offers financial junk, then borrowers should have the FHA program as a safe and sane alternative.

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This entry was posted on Monday, July 23rd, 2007 at 1:30 am 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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