The FHA as a Saviour for Foreclosure Problems

November 28th, 2008 | Tags: Foreclosure Crisis

Many are looking upon the FHA (Federal Housing Administration) as a saviour for foreclosure problems. The prime task of the FHA today is to encourage first time buyers to purchase houses. Anybody can apply with down payments as low as 3% of the value of the house. The standards are lenient taking into account the income of the borrower. The condition is that the expenses made towards the mortgage must not be more than 31% of the income of the borrower. The loan comes with the backing of insurance, the rate is fixed and fees are modest. To take part in this FHA programme the lenders as well as the brokers have to apply for a license. Their expertise and knowledge are given importance.

Few years previously when the sub-prime mortgages were reigning unchallenged, the FHA took a back seat. Borrowers preferred the sub-prime bonanza that practically anybody with a pulse could avail of. But when the initial low teaser rates began to spike, foreclosures took over the scene and created the financial crisis that is rocking not only America but also the entire world. The sub-prime now retreated and almost vanished from 2007. In the autumn of 2008 FHA loans comprised of 26% of all the new mortgages in America. It was an increase of 4% from the previous year On 30th September 2008 the FHA was in charge of 4.4 million single-family mortgages that were under guarantee – it worth totaling to $475 billion.

The Congress as well as the Bush administration is pressurizing lenders to apply for FHA license to operate and avail of the funds set aside for guarantee of loans. In September this year FHA gave its guarantee to new loans numbering 140,000. In January the number had been 60,000. In October as the government began to panic and introduce more measures to tackle the growing foreclosure crisis the FHA loans swelled to cover $300 billion under the scheme of HOPE. The loan limit began to steadily increase of $362,790 in 2007 to $625,000 in January 2008.

Many housing officials feel that FHA does not have the infrastructure to deal with the jumbo sanctioning of loans. Today 36,000 lenders have licenses from FHA. In the middle of 2007 there 16,000 licensed lenders. FHA is facing a tsunami as an onslaught of ex-prime lenders, many of whom have questionable pasts, are pushing for more licenses.