The Last Decent Loan Standing

by Peter G. Miller
January 7th, 2008
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Carl Pruitt makes an interesting point regarding the new popularity enjoyed by the FHA loan program.

“These numbers on FHASecure are definitely not adding up correctly!” he says. “However, I know that it is true that many are avoiding the necessity to use FHASecure because they are refinancing before they become delinquent. I believe all the hoopla over FHASecure has contributed to more people looking into FHA refinances as an option.”

I think Carl is right, no doubt discussions of the mythical FHASecure program have stirred interest FHA loans generally, but let me add another reason why so many people are considering FHA financing: They’ve run out of options. Subprime and Alt-A mortgages are drying up — and so are many of the lenders who used to make such loans.

For instance, Standard & Poors reports that Alt-A loans worth $39.3 billion were issued in the third quarter of 2007 — that’s down from $109.5 billion in the second quarter.

Meanwhile, one of the best blogs online, the Mortgage Implode-O-Meter, reports that more than 200 lenders — including some which were once big names — have failed, contracted or dropped product lines.

Lastly, I don’t think folks are avoiding the FHASecure program — they simply can’t get into it. HUD’s approval of several hundred delinquent conventional borrowers per month has no impact in the marketplace.

The result is that the FHA program in general stands out amid the clutter of dead and dying loan programs. This is only fair since FHA, to its credit, never gave in to stated-income loan applications or predatory prepayment penalties. It’s nice to see that sometimes doing the right thing pays off.

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