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Apparently the mortgage industry has lobbied hard and now the FHA is allowing even people who have had foreclosures and bankruptcy to be approved for FHA loans as soon as 12 months later.
This is crazy. There seems to be zero consequences from irresponsible borrowers. Come one. Give me a break. People say they fell on tough times etc. Yet I know of no one even with the who originally put down at least 20% downpayment even during the peak years (2005-2007) of losing their homes or declaring BK.
Yet there are millions of homeowners who put close to zero down who ended up losing their homes.
And now the government is allowing these same people who put close to zero down to try to get FHA loans (FHA loans can be obtained with as little as 3.5% down). So the least credit worthy people can obtained government backed loans with the least amont of downpayment? Seems counter intuitive to me. Doesn't it?
I doubt government is forcing these people who put down 20% with the FHA either.
You missed the most important paragraph in the article. When you get a FHA loan with 3.5% down you are paying PMI for the entire life of the loan or until you refinance after your equity increases to 20%.
"But only certain consumers who’ve been in those circumstances will be able to meet the criteria attached to the eased restrictions. Borrowers must be able to show their household income fell by 20 percent or more for at least six months and was tied to unemployment or another event beyond their control. They also must prove they have had at least one hour of approved housing counseling and, among other things, have had 12 months of on-time housing payments."
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For nearly 80 years, FHA has helped home buyers purchase their first homes by offering loans that are easier to qualify for, require smaller down payments and at interest rates sometimes lower than they might otherwise get through a conventional loan. Historically, for millions of buyers who have decent -- but not stellar credit scores and haven't saved up a big down payment, the FHA has been a good deal.
FHA is insurance, not a loan. FHA is required to maintain a cash balance equal to at least 2% of all outstanding loans in its mortgage insurance funds. To do so, FHA now requires a 1.75% upfront fee and tacks on 1.35% insurance fee to each monthly payment for the life of the loan, regardless of the equity in the property on all new loans.
I tend to follow the money for answers. Speculation on my part is that it is necessary for FHA to insure X new loans to generate sufficient income to maintain the required balance, which may be why the length of time between a bankruptcy, foreclosure or short sale has been reduced in some situations.
Applications are being considered, when the applicant can demonstrate a one time loss of income of at least 20% related to circumstances beyond their control that served as a trigger event for bankruptcy, foreclosure or short sale.
Government has no authority to be in loan business, period.
Pre the Great Depression, folks typically needed a 50% down payment and mortgages matures in 5 years. At that time, the borrower could pay it off or refinance at current interest rates. In other words, borrowers took the lion's share of interest rate risks, back then.
Generally speaking, those banks which survived the Great Depression, refused to write new mortgages. Government created FHA and FNMA to allow people to buy a home. The GI bill allowed returning WW2 veterans to buy a home with no down payment. Over time, common mortgage maturities increased from 5 to 20 to 30 years and the interest rate risk was shifted from the borrower to the lender to the investor.
Had housing not recovered as it did after WW2, in the 50's, chances are we would still be recovering, 80 years later.
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For nearly 80 years, FHA has helped home buyers purchase their first homes by offering loans that are easier to qualify for, require smaller down payments and at interest rates sometimes lower than they might otherwise get through a conventional loan. Historically, for millions of buyers who have decent -- but not stellar credit scores and haven't saved up a big down payment, the FHA has been a good deal.
FHA is insurance, not a loan. FHA is required to maintain a cash balance equal to at least 2% of all outstanding loans in its mortgage insurance funds. To do so, FHA now requires a 1.75% upfront fee and tacks on 1.35% insurance fee to each monthly payment for the life of the loan, regardless of the equity in the property on all new loans.
And this government interference in the markets is why our economy is in the toilet, and we as a nation are incomprehensibly deep in debt.
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