FHA Has Exhausted Capital Reserves

Disturbing.

"The Federal Housing Administration will exhaust its capital reserves and faced a deficit of $13.5 billion at the end of September, according to the agency's independent annual audit set for release on Friday.

The report shows that the agency's reserves aren't adequate to pay for expected losses on the $1.1 trillion in loans that it guarantees, which means the agency is likely to require taxpayer funding for the first time in its 78-year history."


http://online.wsj.com/home-page?mod=djemalertNEWS

  • November 15 2012 - US
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Answers (5)

All pyramid schemes crumble eventually.  

3 increases in premiums in the last few years made it clear that new money was needed to pay early investors.    It is a wonderful program for homeowners and buyers, but flawed underwriting practices will eventually lead to excessive default as we have seen time and time again.  
  • November 15 2012
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Profile picture for Cindy Quinton
Justin, in your opinion (and any other mortgage professionals out there who want to weigh in), what are some of the flawed underwriting practices you mention? 

Is it simply a matter of the buyers having none of their own money in the home...such a tiny down payment?
  • November 15 2012
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FHA has been a great program for the consumer and the housing industry for 78 yrs.  It was never intended though to provide mortgage loans for buyers of high price housing. In an attempt to be all things to all people, it is in danger of having to make major rule tightening to survive in the immediate future. There is a lot of talk about default problems centering around the low down payment, but when you can't make a mortgage payment the amount of money you spent for a down payment doesn't help make the payments. Not requiring a down payment by allowing gift funds is a big issue, and having a mortgage payment higher than current housing payment with no evidence of a past history of a monthly cushion/savings is a default waiting to happen. Since FHA tends to be used mostly by first time home buyers, there needs to be more evidence that they can afford to remain in the house for the long term. Saving the down payment, improving credit for several years with virtually no derogatory history, having reserves after closing (this will never happen but reserves sent to FHA where they could be used in emergency housing payment issue vs in borrowers acct where it can be spent after closing for anything), realistic DTI ratios, and lower max. loan amounts.
Borrowers should be protected and though it will not help sell off inventory, FHA will be required to make major changes and increasing MI fees is not the answer.
  • November 15 2012
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I work with a lot of first time buyers, and the vast majority of them put down 20% which to me makes the "oh first time buyers can't put that much down" mantra meaningless.

When FHA initially rolled out the down payment requirement was 10%; yes, 10% down. 

3.5% is absurd, and after the 1.75% UFMIP a buyer might as well go conventional with 5% down anyhow.

I used to do a lot of FHA loans, back in the 90s; even though I've changed companies a few time since then some of those old FHA buyers still manage to find me......so they can tell me the hot water heater is broken, there's  a tree limb hanging over the house, or whatever, and when can I fix it............WTH? 


and in the 90s we didn't have automated underwiting, we had 29/41 ratios; exceedable only with compensating factors as listed in the 4155.  FHA needs to go back to those ratios.

  • November 16 2012
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Upon further review you might find that FHA has more funds than ever.  It's all question of which column the money is listed in.   

Feel free to contact me for a link to the TBWS Daily Show from last week that addresses this exact issue -- as I believe it's against the ZIllow Terms and Conditions to post it here.

  • November 16 2012
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