With the continued talk of extending the Tax Credit for Homebuyers, there’s another group of Economist/Strategist discussing the “need” for the FHA Loan Program.
With the increase in loan production for this product comes additional defaults and late payments.
The US Citizens are paying for the program, because we guarantee the loans, so should we really be in the business of mortgage lending?
Brian Montgomery work as a Consultant for HUD and the FHA Commissioner, he has this to say:
“FHA has saved close to one million sub-prime/Alt-A borrowers from possible financial ruin by allowing them to refinance into a safe and secure 30-year fixed rate mortgage. Another 2 million qualified borrowers (80% of them first-time homebuyers) have taken advantage of the declining house prices and historically low interest rates to purchase a home using FHA. FHA’s role has grown substantially from three percent of lending activity by dollar volume in 2006 to nearly 25 percent of all mortgages originated today. That massive uptick in volume occurred almost overnight beginning in spring 2008.
Through it all…. FHA has helped pump more than $400 billion of mortgage activity and liquidity into the market since 2008, while still managing to deliver a higher credit quality borrower whose average FICO score is 700.”
I find that last part really interesting, because we are not seeing a TON of FHA homebuyers with 700 credit scores! Our average FHA buyer profile has a score of @640.
Brian also notes, regarding the looming delinquencies that we should consider this:
“For FHA, the primary reason for continued defaults and foreclosures will be macro-economic problems that go beyond the scope of underwriting. For instance, continued job losses and the further decline of home values and equity.
Absent a massive economic downturn, I don’t believe FHA will face the same type of catastrophic losses we saw in the subprime sector. The reasons for FHA’s problems are very different from the ones experienced in the subprime sector where unsafe loan features and poor underwriting made investing in non-agency mortgages risky from the start.”
I think this is good news, because others are calling for massive tightening… and I think we need every eligible buyer to buy! Forcing credit score requirements up to 680, or 700 is NOT going to help the housing market (because it turns so many folks away who can’t make that score) and it’s not going to keep the defaults from happening when people lose their jobs!