FHA: Does It Need A Massive Market Share?
August 27th, 2007
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The Philadelphia Inquirer points out that FHA market share, “in dollar terms, had fallen from 9.2 percent in 2001 to 1.8 percent in 2005, the last year detailed federal home-loan data are available. Nationally, the FHA’s market share had tumbled from 5.3 percent in 2001 to 1.9 percent last year, while subprime mortgages soared from 7.2 percent to 20.1 percent of the market over the same period.” (See: “‘Going FHA’ Back in Vogue,” August 26, 2007)
Such facts are, of course, true. The question is, should declining FHA market share be seen as some sort of problem or failure?
The terrible reality is that some portion of the people who now have subprime loans could have qualified for FHA financing. However, lenders make bigger profits on subprime loans, interest rates are higher on subprime loans, subprime loans with high rates have been commanding higher prices in the secondary market and borrowers are dependent on loan officers to help them make financing choices — loan officers who get bigger commissions by marketing subprime loans.
If anything, the FHA has been smart to avoid loans with nothing down, stated-income loan documentation and steep re-sets. It has, in fact, acted in the public interest.
The public interest does not require that the FHA has a given market share, only that the program is available as an alternative to higher-cost or less attractive private-sector programs. The steering of FHA-qualified borrowers into higher-cost subprime loans is a core reason for the huge increase in foreclosures nationwide.
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August 27th, 2007 at 10:38 am
FHA absolutely has allowed for borrowers to get financed with practically no money - that 3% of their own funds requirement can be met with gift funds. Gift funds can be built into the contract much like a concession with several assistance programs (Ameridream and Neimiah to name a couple) that are completely acceptable and FHA approved. At this point, the borrower just has to front the appraisal, earnest deposit, homeowners insurance and credit money. If the LO structured the loan right and can evidence these payments the borrower can get the money the put into the deal back at closing.
August 27th, 2007 at 11:32 am
Emily –
You raise an interesting idea. Certainly gifts are allowable by FHA. That said, HUD has campaigned for years to dump groups such as Nehemiah.
Please see:
HUD Nixes Excess Gift Plans
and
HUD Withdraws Proposed Seller Assistance Ban
as examples.