FHA: Does It Need A Massive Market Share?
August 27th, 2007
Related FHA Stories
- FHA Has Lost Market Share. So What.
- Could FHA market share stall in 2011?
- Is FHA The New Subprime?
- Government does NOT regulate FHA mortgage rates
- FHA Loans Whittling Away at MGIC Market Share?
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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