FHA Mortgage Guide

The world of FHA financing has been somewhat curdled by the notion that perhaps we don’t need FHA reform.

Gee, who would say such a thing?

Well, actually, I would.

In my Tuesday column for Realty Times entitled Why The Market Is Rejecting FHA Reform, I noted that “you can’t get an FHA mortgage with a stated-income loan application. You actually have to document your income under the FHA program, liar loans are not allowed.

“Also, the FHA really wants 3 percent down while private lenders have been offering loans with nothing down. In fact, private lenders have been offering loans for more than the appraised value of the property, say 110 percent financing or maybe 125 percent.

“And, of course, you can’t get an option ARM from the FHA or an interest-only loan. The FHA only issues loans which make financial sense for both lenders and borrowers.

“There is now a concerted effort to “modernize” the FHA program. The carrot is that larger loan amounts would be allowed and the FHA would permit loans with no money down. The stick? Mortgage insurance premiums would be based on individual risk rather than an identical fee for all borrowers. The result of risk-based premiums, says the GAO, is that 37 percent of current borrowers would pay higher premiums if they applied under modernization while for 20 percent premiums would not be a problem: They simply would not qualify under the new standards.”

The column concludes by saying “the major reason FHA modernization may fail is very simple: The program is coming back in the marketplace.

“After several years of falling volume, FHA activity is up significantly in 2007. As of July 15th, FHA applications are up 10.9 percent when compared with a year ago. That’s a remarkable figure, given the turmoil in the lending field.

“Rather than ‘modernizing’ the FHA loan program why not stick with the program we have? It does have a high level of foreclosures, but then government programs are intended to help people, not generate a profit. It follows that a program aimed largely at first-time borrowers will have a higher loss rate than private-sector loan programs for the well-healed, programs that did not get 34 million people into houses.”

Blogger Kate Renick at the FHA Book offers a different take:

“As anyone who has scanned the pages of FHABook knows, I am all for FHA modernization. I think it will be a great service to borrowers and make the FHA more relevant in today’s lending market. Here is a column with some opposing views presented by Peter Miller on the Realty Times site.

“I do understand Peter’s point that since FHA is currently making a comeback modernization may be unnecessary, however the aspects of FHA that need to be reformed are what allowed subprime to take over in the 90s. Just because subprime is in some hot water right now, doesn’t mean that something else won’t come along and defeat an outdated FHA again. I know we shouldn’t fix something that isn’t broken, but FHA has been broken for awhile and still needs a serious amount of fixing.”

Fair enough.

Writing in the Seattle Post-Intelligencer, an excellent newspaper, columnist Bill Virgin says “a report from the Mortgage Bankers Association, showing that the average age of all types of housing loans (prime, subprime, FHA and VA, fixed and adjustable) was, as of the fourth quarter of 2005, three years. The average for subprime ARMs was just […] read more

Al heavens, a real estate columnist with the Philadelphia Inquirer, says reverse mortgages “haven’t yet tapped the home-equity wealth of Americans age 62 and older, an estimated $4.3 trillion, according to the National Reverse Mortgage Lenders Association/Hollister Reverse Mortgage Market Index.
“In the last five years, data from the index show, slightly more than 300,000 reverse […] read more

Okay, say you want to buy a bread and breakfast. A place in the country with fresh air, warm breakfasts and lots of dogs and antiques.
It is a nice vision, but could you finance such a property with an FHA loan?
It used to be that FHA financing was the program of choice for many investors, […] read more

The FHA program continues to hum along with great success.
Figures for the first half of July show that the FHA loan applications are up nearly 11 percent. That’s pretty good when you consider the longer and longer list of lenders who are reporting massive losses and closing their doors.
Among the goodies for the first 15 […] read more

The idea of the Internet long ago was that it was, in part, a place where people simply helped other people. You couldn’t get a better or more gracious example of this concept than the offer of blogger Moe Bedard to share the list of lender contacts.
In addition to Moe’s list, let’s add a few […] read more

For all the support in the lending community, not everyone on Capitol Hill is equally thrilled.
Last week we mentioned the reservations expressed by Sen. Richard C. Shelby (R-AL), who worried that taxpayers could be left holding the bill if a reformed FHA also produced a massive number of foreclosures.
Not to be outdone, Sen. Jim Bunning […] read more

HUD — the governmental parent of the FHA — continues to issue foreclosure prevention guidelines. These guidelines were sent out earlier, and now are being packaged for televisions.
“For those people who are first time homebuyers and even those who are buying a second home,” says HUD Secretary Alphonso Jackson, ”one of the things that I think is very important is they […] read more