FHA Loans Versus “Creative” Financing

by Peter G. Miller
September 13th, 2007

The FHA Book has an interesting and thoughtful post:

“I’m going to be honest here. FHA loans are for those who could usually not get a decent loan. If you cannot qualify for an FHA loan you should not be buying a house! Or should at least be buying a cheaper house within the FHA’s limits!!! Creative financing is the entire reason the housing market is in shambles!”

I get the sentiment and largely agree, but allow me to offer a slightly different view.

I think FHA loans are decent loans. They are a lot better than subprime financing, far better than trying to save 20 percent down, they have reasonable interest rates and the FHA has a great program to help borrowers who are in trouble.

As to “creative financing,” I think we’re on the same page. But by creative financing I don’t mean just the loan concepts suggested by get-rich-quick books. After all, option ARMs, 2/28 and 3/27 ARMs, interest-only loans and stated-income mortgage applications are “creative” in the same sense that a hurricane reshaping a beach is creative.

Much of the financial turmoil we see today is a by-product of risky and dangerous loans which should never have been made available to large numbers of borrowers. Lenders could have just said no, but to do so would have meant fewer originations, reduced commissions and lower quarterly results. The FHA, to its credit, maintained sound underwriting standards during the past few years.

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This entry was posted on Thursday, September 13th, 2007 at 5:54 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.

One Response to “FHA Loans Versus “Creative” Financing”

  1. Ann Says:

    Although I do agree that FHA has changed much over the years(my first house was with a FHA loan.which required everything including my first born to be LOL) I have a problem with the way FHA is structured for the predatory broker/lender. FHA allows up to 7 POINTS on a loan. I think that is disguisting. Here we are today with many brokers/lenders who are unable to do business as it was done before running to do FHA loans salivating at the idea of 7 POINTS..what is going to be done about that loop hole before consumers are taken advantage of again…

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