FHA Eager to Grant Loans to Those Fighting Foreclosures

August 18th, 2008 | Tags: Foreclosures

With the Federal Housing Administration (FHA) eager to grant loans to those fighting foreclosures, more people are availing of its reasonable terms to move into a house of their own.

During the time of the housing boom and zoom there had been many loan options but with the slowing down of the market these alternatives vanished. Many like Dr. Ashwin Rao studying for his fellowship in sports medicine, is turning to the old ally – Federal Housing Administration. The loan benefited Dr. Rao. The down payment was a reasonable 3% that came from the money his parents had gifted him.

In February the limits of the FHA loan was raised from $362,790 to $567,500 in King County. It is also applicable to conforming loans that are given to borrowers with better credit ratings and who pay larger down payments. Fannie Mae and Freddie Mac back these federally sponsored mortgages. The limits have been set at $417,000.

Many in Seattle are taking the latest bigger loans. But in general the larger loans are being avoided. This has made David Hatlen of Home Street Bank that it is “a really big flop.” It dampens hope for recovery from the foreclosure crisis. But lately the terms have improved and today Hatlen admits “it’s a great program now.” The problems is that many people are not aware of it – especially those who need it most – the foreclosure victims.

The FHA announced that from October till May it insured 2,658 loans in Seattle region and 11,924 in the state. This is an increase of 78% and 50% respectively from the fiscal year of 2007 that ended on 30th September. This is more than the last three fiscal years. Experts are anxiously hoping that this will have a positive impact on the foreclosure crisis. But of these loans only a fraction falls in the high-limit category. Most probably the word has not gone out yet.

Wells Fargo said that 5% to 10% of its recent increase in mortgage sanctions fell in the higher bracket category. More house loans means more buyers in the real estate market that is starving for purchasers because of the surge of foreclosed houses. The consumers will have to be re-educated to rely on FHA once again. The foreclosure crisis has numbed their reactions.

Raising the limits of big loans is expected to give a boost to the foreclosure ridden housing market.