FHA Home Loans Headed for Trouble?
On 12-16-08 I published a post entitled FHA Home Loans – The Next Bailout? . In that post I noted that the FHA insurance fund had dropped 39% since last year, raising concerns for the FHA requiring its own bailout. Currently, I’m receiving information from FHA insiders that since March, FHA loans are going from current status to 30 days delinquent on a monthly basis almost as fast as sub-prime, and certainly worse than any of the other types of loans.
FHA home loans allow borrowers to buy a home with only 3.5% of the sales price as a down payment (and that can be a gift). The seller can pay all the closing costs (up to 6% of the sales price which usually covers all closing fees and escrows for taxes and insurance). HUD does not require monthly payment reserves in the event the borrower gets laid off, gets hurt and is out of work or incurs some other financial stress. In some cases, the 3.5% down is ALL they have. No safety net is a big problem. In addition many of the people getting FHA mortgages tend to be lower on the socioeconomic scale and are blue collar workers. This leads to higher percentages of layoffs, firings, and injuries which can have a dramatic impact on income.
When you make high loan to value ratio loans the default rate rises. This is very predictable and therefore you must assume that this is a policy choice by FHA leadership. We will pay for this as usual.
The facts are simple. As an American, you do not have the right to OWN a home. Life choices and social status should limit a purchase such as this, just as one would with regards to a yacht.
When food, gas, and utility costs go through the roof with Cap and Trade, more people will be renting. We have to start facing the facts here.
Another FHA loan problem seems to be the fact that many real estate investors used sub-prime loans to flip their properties. However, the sub-prime loans have vanished and it’s speculated that now these real estate speculators are using FHA loans. To flip their properties, these real estate speculators gift the borrower the 3.5% down payment, pay their closing costs, even do credit repair to put buyers into their property, so they can turn a quick profit. A lot of this is done with fake pay stubs, W-2′s and falsified gifts. These straw buyers make a few payments and then default.
Even if the buyer’s intent is to make the payments, many of them are obviously failing at being responsible homeowners.
San Diego home listings
FHA To Allow $8k Credit to be used for Purchase Fees
San Diego California real estate
U.S. Dept. of Housing and Urban Development (HUD) Secretary Shaun Donovan recently announced that the Federal Housing Administration (FHA) will allow home buyers to apply the administration’s new $8,000 first-time home buyer tax credit toward the purchase costs of a FHA-insured home. The American Recovery and Reinvestment Act of 2009 offers home buyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate.
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent down payment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of the announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate.
San Diego housing market
California existing home sales increased 83.2% in November
Who says the laws of supply and demand do not work in today's real estate market? California home sales increased 83.2 percent in November compared with the same period a year ago, according to the latest housing report from the California Association of Realtors.
In my opinion, the main factors for this huge pick up in real estate sales are the very attractive prices combined with exceptional low 30 year fixed rate mortgages and the availibality of 3% down FHA financing.
From my estimates, the majority of these existing home sales are foreclosures or pre-forclosures. Plus, keep in mind, a pick up in sales is only the first step in forming a bottom to our real estate bust.
The other part of the California Association of Realtors report shows the median price of an existing, single-family detached home in California during November 2008 was $285,680, a 41.8 percent decrease from the revised $490,511 median for November 2007. The November 2008 median price fell 5.3 percent compared with October's revised $301,740 median price. San Diego Realtors
Must One be an Attorney to Understand the FHASecure Program?
In Mortgagee Letter 2007-11, the Federal Housing Administration announced FHASecure, a temporary initiative to permit lenders to refinance delinquent adjustable rate mortgages (ARMs) and/or to offer new subordinate financing where the combined loan-to-value ratio exceeds the applicable FHA loan-to-value ratio and geographical maximum mortgage amount.
The Department has decided to expand FHASecure as follows: To include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than two 30-day or one 60-day late payment in the 12 months prior to the rate reset or extenuating circumstance that caused the delinquency; or to include borrowers delinquent on their non-FHA ARMs due to a rate reset or the occurrence of an extenuating circumstance but experienced no more than one 90-day late payment or no more than three 30-day late payments prior to the=2 0rate reset or extenuating circumstance that caused the delinquency provided the loan-to-value on the FHA insured first mortgages does not exceed 90 percent.
Borrowers delinquent on their interest-only and/or payment option ARMs are not eligible for this expansion. Borrowers with these types of mortgages must demonstrate that a rate reset caused the delinquency and that they were making the monthly mortgage payments within the month due during the 6 months prior to the rate reset. For borrowers refinancing delinquent non-FHA ARMs the Up-front mortgage insurance premium (UFMIP) is set at 2.25 percent of the base loan amount (loan amount excluding UFMIP) regardless of the loan-to-value (LTV) ratio. For LTV ratios greater than 95 percent (excluding UFMIP) the Annual premium (collected monthly) is set at .55 percent. This mortgagee letter replaces the specific guidance regarding FHASecure issued in Mortgagee Letter 2007-11 and is effective for case numbers assigned on or after July 14, 2008.
Many thanks to our guest author, Mr.Greg Brooks Southwest area manager San Diego Mortgage Network for this enlightening post. A few our prior popular posts on the FHA were:
Summary of the “Housing and Economic Recovery Act of 2008
FHA Takes $4.6 BILLION Hit … It’s Just Taxpayer Money
Fed Approves New Rules For Mortgage Loans … Too Little Too Late
A NEW LOOK AT FLIPPING PROPERTIES & FHA
Goverment to Use FHA Bail Out Homeowners
Goverment’s FHASecure Refinances 200,000th Mortgage
FHA Home Mortgage Insurance Claims Skyrocket
FHA Boost Loan Limits to $729,750 For California
FHA Takes $4.6 BILLION Hit … It’s Just Taxpayer Money
Due to 'unforeseen' high default rates on home loans, the FHA expects to lose $4.6 billion. The causes of these losses are cited as the FHA’s seller-financed down payment mortgage program, which in particular has seen high delinquency and rates of foreclosure. In order to avoid the losses, the FHA will have to renew efforts to the end the seller-financed down payment program to which 35% of losses in 2007 can be attributed. *Editor's translation: Leave it to the government to come up with a home loan program where, if the buyer does not have the low 3% down payment normally required, the seller can pay that for them. So, from day one, the buyers have zero equity and zero incentive to continue monthly mortgage payments. Duh…wonder why the FHA is losing BILLIONS.
FHA Boost Loan Limits to $729,750 For California
Today the Government reported it is raising the FHA mortgage limits for loans guaranteed by the Federal Housing Administration in 14 high-cost California counties.
The Californis counties at the maximum level for FHA loans are Alameda, Contra Costa, Los Angeles, Marin, Monterey, Napa, Orange, San Benito, San Francisco, San Mateo, Santa Barbara, Santa Clara, Santa Cruz and Ventura. Many feel the limits will be raised nationally very soon.
The higher loan limits will allow many to purchase homes with as little as 3% downpayment. This is anouther move to assist the falling housing market.