The Real FHA Story

The Need-To-Know vs. The Just Plain Wrong

I hear a lot about the Federal Housing Authority, and much of it is simply wrong.

“The FHA is the next sub-prime.” UNTRUE

“The FHA  caused the housing crisis.” UNTRUE

Heres the low-down on what you need to know:

What is FHA?

The Federal Housing Authority is part of the US Department of Housing and Urban Development. The FHA insured loans made by the private market, providing access to safe, affordable financing when the private sector is cannot or will not participate.

What Credit Score Do Buyers Need?

It used to be that credit scores were relatively low to qualify for FHA loans. But FHA borrowers today have credit scores at historically high levels due to the rigor of the lending environment.

What Has FHA’s Role Been in the Housing Downturn?

The private sector largely abandoned housing finance, but FHA did not. In fact, FHA provided access to home-ownership for more than 2.8 million first-time home buyers in the last four year.

Will the FHA Continue to be a Major Provider of Loans?

From 1994 to 2002, FHA averaged about 13% market share for loan origination, NAR reports. NAR further states that  FHA’s market share peaked around 19.3% in 201, but is now returning to traditional levels, standing at about 15.78% in 2012. In fact, Moody’s has reporter that without FHA, housing prices would have dropped an additional 25%, and Americans would have lost more than $3 trillion of home wealth.

How Stable is the FHA Financially?

FHA has consistently used appropriate underwriting in its mortgages, and has never engaged in exotic lending, but has incurred financial losses as a result of overall market conditions and increased foreclosures. Since the market collapse, there has been widespread improvements of FHA loans. Loans insured since 2010 are of high quality and are expected to perform very well. But legacy loans from 2007-2009 are placing a high burden on the fund.

That doesn’t mean that the FHA is bankrupt, it’s total cash reserves total $30.4 billion, according to HUD. However it is thought to be under-capitalized, partially because FHA is required by law to hold reserves for claims over a 30-year period.

Source: Reeal Estate