FHA Loans May Get Tougher Soon -- Just Like Conforming Loans Did

Posted on June 24, 2008Filed under Conforming Mortgage Guidelines Read the complete post or link to it
There were two news pieces written on FHA home loans today.
Separately, they're interesting but uneventful. Together, they could be a harbinger of tougher times ahead for two groups:
Home buyers that use FHA financing
American taxpayers that fund the FHA
The first FHA story was front page in the Wall Street Journal. It shouldn't surprise anyone that FHA loans using downpayment assistance programs default at much faster rates than non-DPA loans.
The second story wasn't so obvious.
Originally run in Bloomberg, Dawn Kopecki writes that Fannie and Freddie are cherry-picking good loans, leaving spoiled fruit for the FHA's balance sheet.
I was a source for this article, quoted about Fannie and Freddie's loan-level pricing adjustments and how it's encouraging American homebuyers with below-average borrowing profiles in weak real estate markets to shack up with the FHA.
You can guess how this story could end for the taxpayer-funded FHA. Not only should the government group's loan portfolio deteriorate over the next few years, its guidelines will likely tighten and its fees may increase.
We've seen this happen before. On video.
So, consider today's FHA stories your fair warning. If you're planning to use the FHA for your next home loan, the approval process should be much easier for you today than even just a few weeks from now.
This is because -- sooner or later -- the FHA's loan problems are going to become a mainstream political issue and that's when the hammer would fall. For as little as the lenders like holding the bag on defaulted loans, the taxpayers like it even less.
(Image courtesy: Wall Street Journal Online)