FHA Reserves to Drop Below 2%, Will See Tighter Restrictions

According to a Washington Post article yesterday, when the new audit report comes out in the next 2 weeks, it will show the FHA (Federal Housing Administration) reserves have fallen below 2%, which is their legally mandated minimum.

FHA guarantees about 1/4 of all home loans and has been hit hard by the mortgage crisis causing the drop in reserves.

It is a complicated issue, to say the least, and FHA commissioner, David H. Stevens, is unwilling to go to congress to ask for a “bail out” of sorts. With recent bail outs of Fannie Mae Mac, Freddie, GM, banks, insurance companies and mortgage companies, the public and congress would probably not look favorably on money given to FHA.

David Stevens has come up with some other ideas to get the reserves back up, which have fallen from 6.4 last year, to now edging under 2% coming up in October.

Require that all lenders and banks that do business with FHA have $1 million in capital set aside for repayment to FHA in the case of Fraud. This is dramatically up from $250,000 that is now required.
He will suggest that lenders be responsible for any losses occurred to due to fraud committed by the mortgage brokers they work with.
FHA insured loans will meet the new HVCC appraisal code of conduct.

It is tricky to understand that FHA does not lend money, but rather insures the loans against loss. With the subprime market collapse borrowers have gone back to FHA which requires only a 3% down payment as opposed to between 20% and 25% with other backers. FHA has insured 23% of all loans this years compared to just 3% in 2006.

Stevens noted that while the numbers look grim, they do not take in to account the amount of “good” loans that have been made as requirements have become for stringent for receiving loans through the “mortgage mess”.

So, what does this mean for the Lake Powell Real Estate Market? Hard to say for sure. I would expect we will see another tightening of requirements to qualify for FHA insured loans and certainly higher “credit scores” for buyer.

While FHA is a great program, stick built homes in the Page Lake Powell area and Eastern Kane county, including Big Water, also qualify for USDA loans.

Contact me for tips and suggestions to get through the process smoothly.

Next up…. how to get your “financial house” in order before you go “home shopping”.