FHA Loans & Foreclosure
August 14th, 2007
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Figures for the first quarter of 2007 from the Mortgage Bankers Association say that while 1.28 percent of all loans were in the process of foreclosure, the subprime sector had a 5.1 percent foreclosure rate while the FHA loan program was at 2.19 percent.
At first it may seem odd — safe and stable FHA mortgages, loans originated with full documentation, complete appraisals and 3 percent down, also show high and discomforting loss levels.
But then, the idea of the FHA is that it should deal with riskier buyers, buyers that the private sector either will not fund or will only fund at steep rates.
So yes, the FHA program has a higher foreclosure rate than mortgages in general. That’s exactly what should be expected with a program designed to serve entry-level buyers.
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August 23rd, 2007 at 8:35 am
What percentage of loans are put into forebarence agreements that are not included in that 2.19% foreclosure rate.
1. standard forebarence program - make larger payments to ger caught up.
2. hardship forebarence program - ie, make smaller payments because they can afford the original payment?
August 23rd, 2007 at 9:23 pm
In Florida, the real story is not being told.
The borrowers who are defaulting on those famous 2/28 and 3/27 ARMS aren’t doing it because they can’t afford the rate increase, which in manny loans could be a few hundred dollars a month more. Don’t get me wrong, that could be a big difference for some. The reason they are defaulting is because there property taxes have gone up 100-200% since they did there loans. and there insurance premiums, thanks to several hurricanes have gone up as much as 400%.
The average property taxes in South Florida is $5,000.00 per year and the insurance costs are up to $7,000.00 per year for a $300,000.00 home.
Sure the stated home loans where crazy to begin with, but there’s a lot to be said about the local governments response to the issues mentioned above.
August 25th, 2007 at 11:00 am
John –
The insurance issue in Florida is a serious matter. I wrote about a builder down there who produces hurricane-proof homes — and I think you will see a lot more effort in that direction. See:
http://realtytimes.com/rtcpages/20060613_stormproof.htm
On the matter of taxes, they are a growing problem in many jurisdictions because while you can pay off a mortgage there is never a final tax bill.
August 25th, 2007 at 11:04 am
Crash –
You raise a good point — it is sometimes very difficult to figure out what various delinquency measures mean.
A more difficult issue is that: How many people are distressed property owners — not being foreclosed but living hand to mouth because of huge monthly mortgage payments. I suspect those numbers are vastly larger than foreclosure or delinquency reports.