By Dave Robison
The Federal Housing Administration’s reserves are high, their defaults are low, and the average borrowers credit scores are 720. So why did FHA recently change premiums, etc.? Because of the annual audit.
FHA just had its annual audit that they reported to Congresss. Their worry was how the audit was going to turn out. They changed many guidelines recently in hopes it would help the audit. If it turned out well, they can show the market that government involvement in loans has been a good thing, as the private sector’s loans of no docs and stated income is what has caused the market to go down. Bad would mean that FHA’s reserve requirement was too low.
The reserve ended up decreasing by 0.5 percent.
FHA is striving to show that low down full docs are safe and they want to show the private market how to reduce risk and give more loans. We still have a ways to go during this downturn of the housing market. According to the audit FHA’s worst case scenario, they don’t expect to have their reserve requirement back up to 2 percent until 2014.
Right now there is another worry, though. Lenders making their own rules. Lenders aren’t loaning to individuals with scores lower than 700. FHA insures loans that lenders make as long as the loan package meets FHA’s guidelines. However, lenders have been setting their own guidelines even higher than FHA’s guidelines due to fear that they may be required to buy back bad loans. The big need in today’s market is to have lenders feel comfortable that they can give loans to individuals with lower credit scores. A big part of getting the market back is having these individuals with FICOS between 640 and 680 buy homes, including those individuals that are 1099.
To give an example, in 1999 the FHA only had 20 percent of market share and they gave more loans in 1999 to individuals under 700 FICO than all GSE’s combined (Government Sponsored Entities Freddie, Fannie, and FHA) this year.
NAR’s Federal Housing Policy Committee is continuing to work on keeping down payments at 3.5 and not increase to 5 percent. They also are working on keeping loan limits at current levels.
Dave Robison, known as “Utah Dave,” is a broker of Robison & Company Real Estate.