FHA: Creating a New Bubble?
Posted by: Chesley Payne
October 11, 2009
Topic: Consumer Information
http://online.wsj.com/article/SB20001424052970204488304574428970233151130.html
This is an op-ed from the Wall Street Journal concerning how FHA is taking a risk in becoming the nation's residential loan underwriter. FHA's role has historically been to provide home financing options for those person who are unable to obtain conventional financing. It's role has changed drastically in the past 2 years, as larger and larger numbers of home purchases are financed by loans guaranteed by FHA. By "guaranteed", this means that if someone defaults on an FHA mortgage FHA guarantees the mortgage company 100% of the defaulted loan. It backs up the guarantee with, you guessed it, the taxpayer's money. While this program continues to have its merits, including much stricter underwriting requirements than conventional loans, the article brings up an excellent point about how it is placing the taxpayer's money on the line in a role far beyond what it was originally intended for. However, the counter argument, and my experience is, without FHA loans for the past 2 years, what small amount of real estate business that has existed would not be there. One only hopes the conventional lending market recovers over the next few years to take this burden away from the government.
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