While principal reduction, loan workouts and mortgage modifications have not slowed the rate of foreclosure from the bursting of the “housing bubble”, the FHA has posted much better than average numbers on their home loans. This article points out that these stats may change as the FHA is the “only game in town’ as to making new mortgages and refinancing existing mortgages. With a greater number of mortgages and no solution to the current fiscal crisis, the number of foreclosures and programs for mortgage relief will affect the FHA in the same way that it has affected most of the mainstream banks.
The problem here is not that the FHA has done anything “wrong” in the sense of offering risky products or reducing standards. Instead, there are simply more FHA loans being made during tough times and the bigger number of loans will lead to more foreclosures, even if the foreclosure rate remains unchanged. In addition, if HUD cannot save delinquent loans from foreclosure at current rates then the number of FHA foreclosures could increase significantly.
In fact, to reduce its risk the FHA has raised its down payment requirement from 3 percent to 3.5 percent. It’s increased the up-front mortgage insurance premium from 1.75 percent to 2.25 percent. In addition, the central FHA mortgage insurance reserve — the FHA Mutual Mortgage Insurance Fund — saw funding grow from $27.2 billion at the start of fiscal 2009 to $30.7 billion at the end of the year, a 4.5 percent reserve against loans outstanding.
Unfortunately, neither the FHA nor anyone else in real estate has the power to reduce unemployment levels or raise home prices. For now there’s nothing the FHA can do but bulk up reserves, tighten standards and hope for better times ahead.
For buyers and investors, the expected rise in FHA foreclosure numbers simply represents a new and growing set of opportunities, opportunities which in some cases may be the best real estate bargains in town.
via Why More FHA Foreclosures Loom Ahead?.
