More on FHA

Friday, January 22nd, 2010 | Uncategorized

Boy, it’s been a busy week for FHA.

A week ago FHA announced that they were changing their policy on flips. Then this week, FHA announced that they would be raising standards for those who need an FHA loan to buy a house.

The first move by FHA makes sense because they need houses to get sold. But when it comes to the second move, the new “more stringent” standards for an FHA loan, it could be too little, too late.

Let’s look at the past year. We’ve heard much talk about affordable housing, but everything that has been done –– HAMP, moratoriums, the tax credit, and the Fed artificially lowering mortgage interest rates through the purchase of $1.25 trillion in mortgaged backed securities ––has done the opposite. It’s actually created a market where prices are being artificially propped up!

So much for affordable housing…but don’t worry, the above actions are temporary. Housing values will continue to decline in most areas of the U.S. until they reach a point that reflects what people can really afford, with the jobs they have and the money they actually get paid.

As for FHA , they’ve done their part in this process by giving people the means to buy houses that they really can’t afford. The result? Sure, many people have been able to get into a house, but for how long? It now looks like we can expect another bailout in 2010 or 2011. How do we know? Delinquencies for FHA insured loans are blowing up all historical benchmarks for sustainability.

Surprised?

Just take a look 2009 when FHA was responsible for insuring $360 billion loans. What this breaks down to is 30 percent of all home purchases, 20 percent of all refinances and 50 percent of all new buyers. Of these, 14 percent of all FHA loans are in some stage of delinquency. How long do you think it will be before their reserve is depleted and they turn to us for help?

So what about the new stringent standards that FHA is going to impose? You can read about them here.

But what you need to know is that the new requirements do not ask buyers to bring more money to the table. In other words, they are still being asked to put down ONLY 3.5 percent. In some states like California, when combined with a tax credit, this down payment equates with one month’s rent!

For the past year, we’ve been watching all this unfold. In essence, nothing was really learned from the subprime, Alt-A and option ARM fiascos, as FHA continues to follow their lead. The only major difference is that that buyers with a subprime FICO score are out of luck when it comes to FHA.

So what does this mean for us? Well, it means that we can expect housing values to continue to fall, and that we need to continue to buy low. The deal is that the economy is a long way from being fixed and you only have to look at recent unemployment and underemployment numbers to know this. Until people have jobs, they’re not going to have the money to pay for houses that don’t accurately reflect what the local community can afford.

It’s all a bit of a downer, but on the other side, we have a tremendous opportunity to assist people out of tough spots, and to get houses back on the market that are truly affordable by local standards.

It’s one of the reason why I love what I do, and why I am passionate about teaching real estate investing to others.

This has been our mission for the past several years, and continues to be so. To take a look at some free information, and to join a forum, check out our FREE silver membership here.

~Josh

www.topshortsalelawyer.com
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