Last Friday, the Senate passed an “FHA Modernization” bill in a landslide 93 to 1 vote. If the president signs it in, it will increase the loan amounts that FHA can insure, and will cut down the minimum 3% down payment to 1.5%. It will also require more counseling to those getting FHA loans.
In my opinion, if the bill is signed in, it will apply necessary pressure to conventional lenders to introduce competing products. This would mean a much needed loosening of lending standards.
This is great, because looser credit is what we need to fix the mess we are in now!? Whatever happened to saving and planning when it comes to big purchases? If future buyers have even less skin in the game what are we setting ourselves up for as a country?
Might as well pump up the FHA conforming limit to 1 million, let everyone with a heartbeat qualify for said amount and then gift everyone the house they bought when it all falls apart.
We truly are becoming an entitlement country.
Anonymous -
I don’t think we need to go back to the “crazy” lending practices of 2 years ago, or even the very loose practices of one year ago. Right now, alt-A borrowers have a hard time getting qualified with less than 10% down, and the jumbo market is a mess. Alt-a (read 740+ credit scores) borrowers can’t get into a jumbo with less than 20% down. The foreclosure rate on this class of borrower is not that far off from conforming, A paper borrowers. The banks will swing back to lending these qualified individuals money, and it needs to happen.
With regards to the FHA changes…until last October, an FHA borrower could get in with 0% down through DPA’s. It swung back to 2.25% down, and now the pendulum is swinging back towards the middle at 1.5%. The current max for an FHA loan in Austin is ~$210k…they’re proposing to increase that dramatically. However, you have to remember how strict FHA guidelines are on income, and proving income. In order to be approved for the larger loan amount, a borrower will be in a great position (with regards to both front-end & back-end debt) to pay his/her mortgage.
Might as well pump up the FHA conforming limit to 1 million, let everyone with a heartbeat qualify for said amount and then gift everyone the house they bought when it all falls apart.
I don’t think anyone is proposing that.
One of the great things about the FHA loans is that they are at competitive interest rates. Many of the loans that are going into foreclosure either started at extremely high rates or have adjusted to extremely high rates which the borrower is not able to pay. Yes, they did get themselves into this and I am not making allowances for the borrowers. I have found that sometimes the excitement of home ownership causes people to do things they should not.
Because the FHA backed loans are at a competitive rate - many times the borrower can realize the dream of owning a home without getting into trouble. If they purchase with out getting into trouble then that helps the whole economy. These first time home buyers enable others to move up and that is what the program is designed for. If most of the sub prime loans that are in trouble had been run thru the FHA underwriting system - we would not have the level of foreclosures that we are seeing now and the borrowers would have reasonable interest rates.
This is my opinion and I am sticking to it!
Good Post! I am going to digg it.
We need to ensure that credit is available to people who deserve it in order to keep the real estate market from completely going through the floor. Yes, subprime needs to be tightened, but this is a good step toward making sure credit is available to those who need and deserve it.
I’m a local Austin mortgage guy with Mylendingplace (http:www.mylendingplace.com). One way I follow the mortgage markets’s “tightness” is to look at the difference betweent the regular 30 year fixed rate and the Jumbo 30 year fixed rate. At the height of the credit crunch the jumbo rate was a full 1 point above the 30 year fixed rate. Normally, it should be around .5 higher.
Thanks!
Jon Spears
This is interesting and as a first time commenter (but multiple time visitor), let me first say that I really enjoy your blog - you seem very well versed in the world of real estate. In one of your future entries, I would love to read more about your thoughts on how the lending standards would be loosened and maybe how this would effect other aspects of our economy. Thanks and have a great New Years!
Thanks for the comment, and for the suggestions! I will definitely consider it in the future.
I worry about all the people that got mortgages by following the guidelines that can no longer get a loan. I hope that new bills are passed that protect the homeowners that are doing everything right. I think fha loans will make a comeback in the months and years to come. see http://www.onlinefhaservices.com
Ahhh! Sometime back, I was one of those who deserved a home loan but did not have a good record. I got the loan. I am doing well and able to pay off… I hope the FHA comes back.