FHA Commissioner Stands Behind Home Loan Programs
October 3rd, 2009
Related FHA Stories
- Your FHA Loan: Qualifying with Alternative Credit
- Getting a Home Loan When You Have No Credit
- FHA Cash Reserves Fall Below Required Levels: What’s Next?
- FHA Loans Gaining Popularity with Buyers, Homeowners
- FHA Loans Provide Home Financing for “Unconventional” Borrowers
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In a recent letter to the New York Times, FHA commissioner David H. Stevens responds to allegations that FHA loans are taking the place of the sub-prime loans that were largely responsible for record foreclosure rates. Concerns about heightened risk prompted a proposal to increase down payments for FHA loans to five percent from the current minimum of 3.5 percent.
Commissioner: FHA Loans are Profitable, Borrower Credit Scores Increasing
There are several good reasons for getting an FHA loan; FHA is an agency of the federal government, overseen by the US Department of Housing and Urban Development (HUD). Unlike here-today-gone tomorrow sub-prime lenders, FHA insures home loans made by its approved mortgage lenders. This creates an alliance between mortgage industry lending and loan servicing expertise and more than $30 billion in reserves held by FHA for reimbursing lenders for foreclosed FHA loans.
FHA: Dedicated to Protecting Lenders and Assisting Homeowners
FHA offers support for lenders and homeowners wanting to avoid foreclosure. It works with community housing services, credit counselors and other financial professionals to assist distressed homeowners before foreclosure becomes necessary.
Getting an FHA loan may be the only affordable way for many homebuyers to get the mortgage they need for buying a home. As credit standards have tightened, FHA loans have become a predominant resource for those who have less than a 20 percent down payment. Although borrowers pay an up front mortgage insurance premium (UFMIP) and continue to pay annual mortgage insurance premiums until certain conditions are met, an FHA home loan can provide a gateway to the benefits of owning a home.
Credit Challenged Borrowers May Qualify for FHA Home Loans
Conventional mortgage lenders may not lend to borrowers who have a foreclosure or bankruptcy on their credit reports. FHA guidelines permit both, provided that a foreclosure occurred at least three years prior to the borrowers’ loan application, and a bankruptcy occurred at least two years prior to applying for an FHA mortgage loan. FHA guidelines also provide borrowers without traditional credit an opportunity to document their credit using rent receipts, utility payments and other “non-traditional” proof of creditworthiness. As financial institutions are cutting credit lines and refusing to issue consumer credit, it seems that FHA’s willingness to consider alternative credit documentation may become more important for homebuyers who have not established traditional credit lines. Although FHA is tightening some credit requirements, such as requiring lenders to certify verification of income and employment, FHA loan requirements provide those with little cash and less than perfect credit an opportunity for owning a home.
With FHA mortgage rates holding steady, first time homebuyers can potentially take advantage of lower home prices and mortgage rates to qualify for affordable FHA home loans.
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