FHA eyeing changes as reserves dwindle

    The statistics vary widely, but the fact of the matter is FHA insures between one-in-four to one-in-five homeloans received in the past 12 months.  That is a huge portion of the market.  With increasing defaults and payouts on FHA insured loans, FHA is reporting that their reserves are falling below their required minimums, and the Federal Government is taking note.

    FHA loans have a very low entry rate, 3.5% down minimum requirement and they’ve begun to cater to even those with minor credit challenges.   Their popularity and flexibility have been amazingly helpful over the past 12 months, a LARGE majority of the purchase I’ve written (and Listings sold for that matter) have been FHA loans.

    Skeptics, sucha s Daniel Indiviglio a business writer for the Atlantic (link to article below under Sources), believe that:

    “Bigger initial premiums would effectively cause home prices to rise for those seeking FHA-insured loans. The higher monthly premiums would mean homeowners mortgage payments would increase. And remember, the consumers that the FHA caters to are low-income borrowers.”

    I tend to agree.  FHA loans are playing a vital part of our recovery.  Their relative flexibility (and I say relative sparingly as there are MANY homes that do not qualify for FHA finanicng but 1 in 4 to 1 in 5 is a pretty strong statistic) of FHA is allowing these homebuyers to buy homes and qualify for the First Time Home Buyer Tax Credit.  After all – the next best alternative is a 90% loan to value (10% down) for qualified individuals and the ever elusive 95% loan to value (which has required underwriter approval on a case by case basis the last two times I’ve tried to use the program for a client).  How many first time buyers would be buying right now if the down payment requirement was 10% or even 20%?

    What do you think?

    Sources:
    The Atlantic Online

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