When real estate was booming, and lenders were handing out money to anyone who could sign his or her name, the Federal Housing Administration was viewed as a relic.
Requiring down payments, appraisals, and limiting loans to $362,000, FHA-backed loans lost businesses to sub-prime lenders. First-time homebuyers, who qualify for FHA were discouraged from pursuing FHA loans, and many in the real estate industry viewed them as difficult to work with.
Now, with many of those risky loans in default and lenders tightening, the FHA is back. The agency requires a 3% percent down payment. And in some cases, borrowers can get no-money down loans, with assistance from family member, non-profit, or an employer.
The stimulus bill signed by the President February 13, 2008, will soon boost the limit on loans that can be insured by the FHA to as much as $729,750 in high-cost areas.
With banks tightening their own standards, many lenders are already gearing up to do more FHA loans. Will the FHA be able to manage the risk?
Comments
The people simply paid too much for their houses"got rip off" that's why they can't pay the loan, the house price has to come down at least 75% before the market returns to normal again
I wish the FHA would not enable housing prices to maintain these very high historical levels.
A homes cost is now far higher than the actual cost of the materials and labor to build it.
Many lenders are now requiring 20% down payments. I've talked to some people who say this is just making it harder for real estate prices to stabilize. They say the problem wasn't "no money down," but mortgage payments that were unaffordable. With no and low documents loans lenders didn't check if borrowers could afford to make their monthly payments.
Thanks to last Fed Chairman's low interest policy for such a long period of time. This is the main reason that caused the subprime-loan-shark using their bad business practice to trick not-so-smart "potential home owner" to apply for a home loan. Based on the stats, 70% of households in USA own a home. How could it be ? Those household income barely reached $40,000 can get a loan of 500,000. How are they going to repay it when the rates reset ? How come the Greenspan did not see this coming until very very late. So myopic !
The defaulted loans are loans that never should have been made to begin with. When the Federal
government forced lenders to loan money to people who would have never qualified, they opened the flood gate. Why would one think that people who would not qualify would know how to handle and use credit wisely?