People buying homes and getting mortgage loans with little money down was a large part of the problem. Getting in with little money affects the market and the transaction in many ways. Less down means less equity, a bigger mortgage payment, perhaps a higher interest rate, less than desirable financing alternatives, etc. Buying with little down can have a mushroom effect. Back in the hey day of sub-prime, countless borrowers bought homes with zero down, got 2 mortgages, and had an adjustable rate. So many of these homeowners are in trouble now.
The FHA program was started with the idea of the 1st time homebuyer and average America in mind. So, it would conflict with the primary program goals to change the program in any major way.
FHA is experiencing problems now with about 15% of all loans being at least one month behind (just read this yesterday). FHA does collect mortgage insurance from the borrowers to cover losses however. Hopefully that fund has the proper reserves on hand.
There is news out there now that FHA may be making changes to the program in early 2010. The minimum down payment might rise to 5% and the maximum seller contribution could drop from 6% to 3%. There could be other changes as well.
So this seems to say even FHA realizes changes need to be made. I have been doing FHA loans for 9 years and FHA changes like the wind anyhow. News of a change is par for the course.
Anyone wanting to buy a home and use FHA should step up to the plate and get things started.
Hope this helps.If the real estate market crashed because borrowers bought homes with hardly any money down, why is FHA ...?
Those homes are insured by the Federal government, so there is not the same risk. However, that does NOT mean that there is no risk at all. FHA loans have been around for a VERY long time....well before everyone went insane thinking that their $150,000 house was worth half a million bucks and well before the market came back down to reality. Generally these borrowers go through a MUCH more rigorous screening process, than traditional loans.
FHA is currently undgergoing some major changes (see links below) that, once passed, will require the buyer have more of a vested interest in their purchase. Currently, there are no credit score requirements, 3.5% down and up to 6% in seller contribution. Consideration is being given to change that requiring credit score requirements, 5% down and a maximum seller contribution of 3%. Sounds like a Conventional Loan if you ask me, although...
...the differences between Conventional and FHA will be in other areas, like with appraisals. Instead of going back 6 months, they'll only be able to go back 4 months. This is not a proposed rule, but one that will be effective 1 Jan 2010. More about it and other FHA changes in links below.
FYI: The real estate market crashed for several reasons. Predatory lending and lack of disclosures to name just a couple. Now we have a serious problem with mortgage servicing companies preferring to foreclose rather than help owners via short sales because allowing a home to foreclose is proving to be more lucrative. See it for yourself on www.youtube.com and input Mortgage Servicer's Secret. Click into the video picturing the redhead: former employee of EMC (Bear Stearns) who eventually left the company because she was reprimanded for ';trying'; to help homeowners. Sadly, we've moved from predatory lending to predatory mortgage servicers. Why can't the government keep up with these predators?
FHA takes a good look at your income taxes and if they do not see the right numbers to back up a approved loan they will not insure the loan and the loan will not fund.The insurers are being real careful who they insure.It is wise to make sure your buyers are paid up on their income taxes and they have been filed for the last two years properly so the wheels of progress continue to close deals.
That's not the main reason for the crash. Poor loan underwriting (giving loans to people who couldn't afford them) and securitization of mortgages (along with poor underwriting of those securities) were the main reasons.
No because the guidelines to qualify for an FHA loan are much more difficult than the no money down loans from a few years ago.
it crashed because of all the adjustable rate mortgages. great rate for the first cpl years, then the payments increased and ppl couldnt afford them
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