Are FHA loans the next housing time bomb?

The UK's traditional property sale market (through estate agencies) has shrunk significantly. However, the cash sale market where motivated sellers sell their properties at a reduced price to a cash buyer has boomed. This is likely to continue for at least another 3 years. http://business.timesonline.co.uk/tol/business/industry_sectors/construction_and_property/article6096888.ece

RE: "1. Why have we not heard more about PMI and its role in the current housing and financial crisis?

2. Why are the mortgages causing losses to the lenders where there is PMI? (I know some losses are caused by larger than 20% reductions in the foreclosure sale prices in some areas for those loans for which PMI was not required.) Shouldn’t PMI then also help protect the value of the mortgage backed securities and the collateralized debt obligations? With that protection in place, why have the credit default swaps turned out so poorly? Are the issuers of PMI simply being overwhelmed such that the losses significantly exceed the reserves having been established from the PMI premiums paid by the borrowers?

3. Who are the issuers/underwriting companies of PMI? Are they the recipients of bailout money? If so, for the sake of transparency, shouldn’t we know that? How bad off are they? Is there any likelihood of return of any of the money to the taxpayers?"

Private Mortgage Insurance has nothing to do with CDOs or CDS. If a loan goes to default then the MI companies pay a claim to the lender/investor. They do not insure MBSs, they insure individual loans through a flow or bulk basis. Many investors and Wall Street firms went to 2nd liens to avoid MI, thus had no insurance to on these liens. They are currently not eligible for TARP funds and many of the changes that are tightening their guidelines are due to capital constraints. Since, they are insurance companies they are highly regulated on a state-by-state basis. Their reserve requirements are based on a percentage of the coverage of the loan amount i.e $100K loan with 30% coverage would require $7500 in reserves.
The shift to FHA has reduced the new business written by these companies. Once you a drop in the foreclosures and delinquences, you will see these companies lighten some restrictions and make a play for more market share.

What a joke. So many experts out there. I have been originating loans for 15 years and everyone wants to blame the banks. The banks don't even make the guidelines. Fannie, Freddie, and Ginnie make the rules and the banks follow them so they can deliver these loans in the secondary market. (For the most part) It is these government backed companies that need the blame along with stupid Americans that buy outside of their means. This article and all of the comments make me laugh and show why we are in our current situation. Most of what has been said here doesn't amount to a pile of beans. I think it is funny to think that you can determine by credit score, DTI, down payment, etc. who will be a good risk and who won't. It's just a big guessing game and those factors only show the past and really have little to do with the future. I have seen it all….Poor, rich, good credit, bad credit, high/low DTI…….Some will defalt from all situations. So, PMI this and DTI that….Credit scores are a joke. And downpayment doesn't mean squat when it comes to defalt. No income = no payment and that does not descriminate based on ANY factor. Good luck to the people that think they can "fix" the market…..better you than me. And to all of the experts out there, maybe you should work with the treasury department now that you got one mortgage loan in your life.

I happen to think the FHA program is great if it is used by responsible borrowers. I am just about to close on my first home in about a month. I went through the FHA program and put the minimum 3.5% down and got great terms on my loan. I am a late 20's young professional and I have been very financially responsible throughout the whole home buying process. I am definitely living within my means buying a house I know I can afford. Most of the problems with the housing market has been irresponsible people applying for loans without first doing their homework. But, due to the meltdown, I have benefited greatly.

Where are all of these people (including the author) getting their facts??

MIP IS NOT .5% ANNUALLY!!!

I have been originating these loans for 12 years.
For FHA, MIP is calculated as either 1.5% Upfront (UFMIP) OR 1.75% Upfront (UFMIP) depending on type of loan (FHA purchase, standard FHA refi, OR FHA "streamline" refi) AS WELL AS .50% to .55% MONTHLY MIP.

There is NO SUCH THING AS ANNUAL MIP.

UFMIP can be paid in cash at close OR in most cases it is financed in with the loan amount. Then the borrower pays a reasonable monthly premium. Quite simple.

As of Jan 1st, FHA and lender's internal guidelines NOW loosely consider a borrower's credit risk)

There is obviously some confusion in various terms made by readers, evidenced by some of the comments.

Let me clarify…

MIP (applicable ONLY to FHA) and PMI (applicable to conventional loans) are similar forms of Mortgage Insurance.

These companies are taking huge losses in recent years. Some PMI Mortgage insurance companies are no longer insuring some types of properties (i.e. investor) and ALSO no longer insuring borrowers who have less than a 680 credit score due to risk. MIP has incrased it's upfront and monthly premiums as well. The companies are adjusting to risk and losses.

While the mainstream media, many Americans, and even the government are currently pointing fingers at the mortgage industry and blame the big banks for this economic mess, the REAL truth is that we can thank Congress and several former presidential administrations who felt that every American was ENTITLED to own a home regardless of their ability to repay the debt and their level of credit worthiness. This dates back to Jimmy Carter era.
The "Subprime channel" was further pushed by the Clinton administration and folks like Barney Frank.

FACT IS… CONGRESS FORCED BANKS to loosen their lending standards.

As an originator thru two administrations, I have seen it all. If a borrower approached me several years ago who had clearly demonstrated poor credit, a general lack of resposibility towards use of credit AND A program existed within my portfolio, whereby it would ALLOW this borrower to purchase a home with no poor credit and even no money down, (even though I KNEW they were a bad risk), I still had to perform the loan at the risk of getting SUED for DISCRIMINATION!!!

Nice laws, Huh???

The FHA insured mortgages with low downpayments and is now reaping the fruits of its work: Mortgages should not be available without sizeable downpayments, at least 10% and better 20 or 30%. If some people can't save enough, they shouldn't buy.

Well even though I just bought a home, I think owning is overrated. Renting is not always a bad deal – it depends on your personal situation & the market that you are in. I think most people underestimate the costs associated with ownership, outside of the mortgage itself. Depending on what you buy, you've got HOA/PMI/Hazard Insurance/Property Tax/etc that can add up almost to another mortgage payment. At least with renting, the landlord pays all of those costs and (hopefully) takes care of any repairs.

FHA loans are not as "high risk" as they once were. As of last month, the minimum credit score for FHA approval was increased to a 620 (thus weeding out many of those people with "shaky" credit history). The buyers are also forced to pre-pay a significant mortgage insurance premium and as always these loans are underwritten with full income documentation.

I think the FHA program is outstanding, my only issue is that the FHA lending limit has actually been "decreased" in many markets over the last year and is now (in many cases) well below the conforming loan limit of $417k. There are very few areas in the country that have been granted the higher lending limits and many of these are in the hardest hit areas of the country where the need for a housing rebound is most desperate.

If the federal gov't really wants to "spark" the economy they need to increase the conforming loan limits across the board as promised in early 2008 and they need to increase the FHA lending limit as well. This will allow people in the hard hit areas of California, Florida and the Northeast to be able to qualify for lending programs with competetive interest rates (as jumbo rates are often 2% pts + higher than conforming rates)

FHA has always focused on the fundamentals of prudent underwriting and credit policies and has long held a commitment to strong program oversight and risk management. FHA’s risk management practices encompass the entire process from lender approval to loan endorsement and servicing, including: Post Endorsement Technical Reviews, Appraiser Watch, Credit Watch Termination Initiative, Quality Assurance Lender Monitoring Reviews, Annual Lender Renewal and Audited Financial Statement Review.

Originating quality loans is critical to the success of any mortgage entity and the FHA is no exception. Collectively, we must make every effort to eliminate improperly originated, underwritten and/or serviced loans, or related fraudulent activities.

FHA continues to introduce proactive measures to appropriately manage its risk. Recently, FHA reactivated its Special Work Assessment Teams (SWAT) to conduct single-focus on-site reviews of lenders whose originations are exhibiting signs of distress.

HUD must hold mortgagees accountable for their lending practices in order to protect the public trust and the FHA Insurance Fund. The Department expects each mortgagee to exercise the same level of care in originating, underwriting and servicing an FHA-insured mortgage as it would for a loan in which the mortgagee would be entirely dependent on the property as security to protect its investment. When a mortgagee fails to comply with HUD’s policies and procedures, HUD will take the appropriate action. For example, lenders that materially violate FHA program statutes, regulations and handbook requirements may be referred to the Mortgagee Review Board for appropriate sanctions, which may include termination of mortgagee approval.
The Department urges you to review your company's procedures to ensure that your organization is in full compliance with all FHA requirements. While not an exhaustive list, it is imperative that you ensure your organization:
• implements and maintains a comprehensive quality control plan,
• reviews all loans with early payment defaults;
• does not engage in false or misrepresentative advertising;
• fully documents the stability and amount of borrower(s) income; and,
• does not charge excessive and unallowable fees to the borrower.

I'm a loan officer and though lenders do need to tighten the belt so to speak this article disingenuous at best.

FYI, some pos news on FHA viabililty

Subject: Potomac Partners Update: FHA Budget Testimony & Mortgagee Letter on Monitoring

We would like to update you on the following:

• Secretary’s Testimony on FHA Budget

At the FHA budget hearing yesterday, Secretary Donovan outlined his objectives for FHA going forward. Here is the link to his entire testimony. (http://www.hud.gov/offices/cir/test090402.cfm ) Some of the highlights are:

1. Despite concern about FHA’s financial status, the Secretary assured the industry that “FHA insurance is reliable as ever” and “FHA has indefinite resources” to honor its obligations.

He raised the concern that FHA may need additional government funds (i.e. bailout) on which the press will likely focus. However, the Secretary also said the following:
“Since FHA insurance is backed by the full faith and credit of the United States government, I want to assure the market participants that FHA insurance is as reliable as ever and there is no possibility of FHA "running out of money." Under authority provided to all federal loan programs, FHA has indefinite resources to honor its outstanding commitments.”
2. The Secretary acknowledged that industry actions have improved the credit quality of FHA loans. The Secretary said:

“FHA has been attracting better quality borrowers in the last year. With much tighter underwriting standards in the private market, more higher quality borrowers can't qualify for conventional financing and end up with FHA-insured loans. Credit scores for new borrowers grew sharply in 2008, averaging over 680 at the end of 2008, compared to prior year averages of around 640.”

3. Secretary’s and FHA Commissioner’s (Dave Stevens has been nominated) agenda
“In summary, I want to assure the Committee that while significant challenges exist, the FHA is prepared to meet these challenges head on. I'm looking forward to having David Stevens confirmed and take the reins at FHA.
“ Together we are committed to an ambitious reform agenda:
• modernizing FHA's core technology systems;
• enhancing our business practices;
• ferreting out fraud among borrowers and lenders;
• fixing and scaling up the Hope for Homeowners refinance program for "underwater" borrowers;
• revamping FHA loan modification efforts to reduce foreclosures;
• stimulating new energy efficiency mortgage products into the market, and
• restoring FHA to a respected position of leadership in the marketplace.”
While we do not have details, we were particularly interested in the 4th item (fixing and scaling up the Hope for Homeowners refinance program for "underwater" borrowers). This change could open up the H4H Program to millions of borrowers and also enable non-servicing lenders to participate in the program. Just yesterday, Martin Feldstein, noted economist and former Chairman of Council of Economic Advisors, indicated that 1/3 of mortgages are now also “underwater”.
• HUD Mortgagee Letter 2010-12: Mortgagee Monitoring

To coincide with the Secretary’s testimony, HUD published a mortgagee letter yesterday (see below) that reminded lenders of FHA’s risk management practices. There are no new policies contained in the letter. FHA has also started “SWAT” reviews of lenders with higher default rates focusing particularly on direct lending originations. It was likely developed in reaction to the Washington Post article and criticism of FHA’s risk management practices.

The letter states:

“The Department urges you to review your company's procedures to ensure that your organization is in full compliance with all FHA requirements. While not an exhaustive list, it is imperative that you ensure your organization:

• implements and maintains a comprehensive quality control plan,
• reviews all loans with early payment defaults;
• does not engage in false or misrepresentative advertising;
• fully documents the stability and amount of borrower(s) income; and,
• does not charge excessive and unallowable fees to the borrower.”

Brian Chappelle
Partner
Potomac Partners
2127 S. Street N.W.
Washington D.C. 20008
202-637-7020

Mortgagee Letter 2009-12

As a society, do we value all of our citizens owning a home vs. renting? Is there a big benefit to this worth helping people buy a home they would not be able to buy on their own due to their perceived credit risk? I think renting a home is just fine and I am sure there are a lot of people around the world that would agree a roof over their head is better than none.

The FHA and VA guarantee many of the loans made for those borrowers with less than a 20% down payment. The remainder (and the bulk of the bad loans made in recent years) were required to have private mortgage insurance (PMI) so the loans could be resold into the secondary market, such as to Fannie Mae and Freddie Mac. The purpose of PMI is to prevent the lender from losing money in the event of a borrower default and inadequate recovery from the foreclosure sale. PMI acts as the second line of defense (after the value of the collateral – the home- itself) just as do the FHA and VA guarantees for FHA and VA loans.

1. Why have we not heard more about PMI and its role in the current housing and financial crisis?

2. Why are the mortgages causing losses to the lenders where there is PMI? (I know some losses are caused by larger than 20% reductions in the foreclosure sale prices in some areas for those loans for which PMI was not required.) Shouldn’t PMI then also help protect the value of the mortgage backed securities and the collateralized debt obligations? With that protection in place, why have the credit default swaps turned out so poorly? Are the issuers of PMI simply being overwhelmed such that the losses significantly exceed the reserves having been established from the PMI premiums paid by the borrowers?

3. Who are the issuers/underwriting companies of PMI? Are they the recipients of bailout money? If so, for the sake of transparency, shouldn’t we know that? How bad off are they? Is there any likelihood of return of any of the money to the taxpayers?

Can someone please tell me why renting is such a bad thing? While you might not get the tax benefits of home ownership, there is a lot to be said for having maintenance and repairs included in your monthly payment. I bought a house in 2006 that cost a lot less than what lenders were telling me I could afford, because, after all, I am the best judge of what I can afford. I agree with Rudy from New York – people who bought homes they could afford and maintain should not have to subsidize people who can't. If renting is something done only by the "less fortunate", it says a lot about the standard of living in this country. This instant gratification complex we have here is going to be the death of our economy. If everyone has a particular commodity, that commodity is worth a lot less all of a sudden. These politicians should be required to take a remedial economics class before they are sworn in.

"At 3.5% down, almost 100% of the people who buy a home wit FHA financing will be underwater by the end of the year (analysts all expect another 5-15% drop in national prices). People who are underwater are VERY likely to default on the tax payers dime. That is the problem with FHA. If people put less down they should be subjected to MUCH MUCH higher standards, or be forced to pay a MUCH MUCH larger PMI than conventional loans."

Not necessarily. Lake County, IL where I live is only projected to decline 1.7%. I bought the house for 7% less than what the current owner paid for it in 2003, and 8% less than their lowered asking price (23% less than it's highest value in '06/'07/'08). Now factor in 3.5% down on top of all of that and I fail to see where 3.5% down is a problem. Heck, I'd be MORE willing to walk away if I had LOST a 20% down payment. That real, hard cash that I had in my hands is GONE. The only time that I'm out any 'real' money now is if prices do decline far enough to where I am under water and I need to sell. I'm prepared to be under water a little. Anybody that buys now should expect their home to lose SOME value. But given enough time, that value will come back.

This is an interesting article. I can't speak for the entire process, but I just closed on an FHA loan, and it was a very complicated process. I have a very high (770+) credit score & could have put down about 10%, but chose not to with interest rates being so low. I do realize that the market will probably continue to fall given the job market, but decided to buy because my rent would have been almost equal to what my housing costs (mortgage + PMI + tax +HOA) is now.

It does alarm me that FHA gives loans to people with less than 700 scores, and that they allow people who have DTI of 40+% to still get the loan. For people like me who have been smart with their money, have little/no debt, and are buying a home they can truely afford, FHA is a God send. However, if they are going to give loans to people who have shaky credit histories and are buying homes way out of their affordable range, then FHA is no different than the banks offering sub prime loans from 2 years ago.

This article is simply stating the obvious. It is offering real world validation as to why banks require down payments and respectable credit ratings. It's not like these qualifying factors were arbitrary.

FHA insurance backed loans for decades have been the backbone for first time home buyers. Combine this with the current 8,000 credit for first time buyers WOW. This will stimulate the housing market, First time home buyers are 50% plus of the entire housing market and should be. With interst rates at 50 year low and prices at or near the bottom of the market why are people waiting for housing needs? NOW IS TIME TO BUY. FOCUS SHOULD AND WILL ALWAYS ON THE FIRST TIME HOME BUYER. NOW IS THE TIME TO BUY. The focus is and will always be the first time home buyer.

Don't worry about the taxpayer losses from transferring mortgage risk. The generation that is now in the womb who will be confronting this debt time bomb will simply repudiate all the treasury debt that was created during this period. And with perfect justification.

First of all let's get some facts straight, I love these people who think they know something , but they know nothing. First, FHA has an upfront Mortgage insurance whisch is 1.75% NOT 1.5% as stated, Secondly the monthly Mortgage Insuance is .55 NOT .50. Thirdly the minium credit score is not 600 it is 620. So when you are writing about mortgage topics you should make sure you report the correct information

I have been doing FHA loans for 20 years and i wish Reporters would get ther facts correct

"On a brighter note, lower-end house prices have or almost have reached the bottom and sales are increasing in some areas of Central California. A house that cost $260K three years ago is going for around $125K today. With interest rates low, the monthly payment is affordable for people who do have a job. As long as these people have a job, they are not going to be walking away from their house.
-D"

I agree. In the event people do go underwater due to the 3.5% downpayment, at least the payments are super low.

However, when people buy a home worth 750k, you cannot say the same thing. The problem with current FHA is the COMBINATION of low downpayment (high probability of being underwater) and high loan limits. That is a recipe for disaster.

"I just fail to see where people have a problem with FHA loans. The only real difference between the FHA and convential is the down payment. FHA borrowers still have to meet debt to income ratio requirements, credit rating requirements, verify income, and have a stable job history. The only thing they don’t have to have is 20% down. And again, if you are a first time borrower in an expensive area, good luck with coming up with enough money to meet what would normally PURCHASE a home in vast portions of the country."

At 3.5% down, almost 100% of the people who buy a home wit FHA financing will be underwater by the end of the year (analysts all expect another 5-15% drop in national prices). People who are underwater are VERY likely to default on the tax payers dime. That is the problem with FHA. If people put less down they should be subjected to MUCH MUCH higher standards, or be forced to pay a MUCH MUCH larger PMI than conventional loans.

The MIP is 0.5% annually. Thus 0.5/12%

" Take those loans away and your job as an editorial writer would probably be focused on things like depression level unemployment and market conditions."

Obviously, when housing goes through a price correction, it can devastate the entire world economy. Our national policy should be for stable housing prices as well as stable inflation. If housing goes up nationally by more than 5%/yr, the Fed and congress should take immediate action to slow down price appreciation, since over appreciation would cause a correction that can devastate the entire economy.

On another note. I have been through the FHA process and the conventional process recently. FHA does require a lot of paper work and scrutiny, however, when people put 3.5% down on a 750k home in a rapidly falling market with a DTI of 45-56% based on credit score and other enhancers, you can see there is a problem. FHA was never a problem before because the loan limits were smaller and the market wasn’t falling. That isn’t the case now. They need to double the insurance premiums to cover this vulnerability while still providing a “reasonable” alternative to first time home buyers with very little cash.

Carla…You were right the first time…the monthly MIP is .50% and the UFMIP is either 1.5% or 1.75% depending on the individuals credit score and profile

Donna, stop confusing the term 'less fortunate' with 'culpable'.

Anyone with even a basic math education can clearly see than many people have no business buying homes, regardless of what reckless plans the government offers.

Those of us who demonstrated common sense and avoided this lunacy should be emulated, not made to subsidize the foolish and childish choices of others.

To those of you who comment that FHA is to help first time homebuyers, stop missing the writer's point that the FHA is doing so at great jeopardy to the taxpayer based on its extremely high loan delinquency rate.

A lot of comments have been made.

On a brighter note, lower-end house prices have or almost have reached the bottom and sales are increasing in some areas of Central California. A house that cost $260K three years ago is going for around $125K today. With interest rates low, the monthly payment is affordable for people who do have a job. As long as these people have a job, they are not going to be walking away from their house.
-D

Everyone keeps saying the taxpayers have to bail out those that have the misfortune of foreclosure….aren't they tax payers as well?
Folks are so critical, mean and downright nasty. It is beening reported daily that folks that had millions of dollars are now penniless. Anyone of us could find ourselves in the same situation.
Say a prayer for those that are less fortune and know that at any moment it could be you or someone very close……PLEASE!!

Why would anyone ever want to own a home? It's an inflexible tax liability with mediocre long term investment returns at best. I wish my fellow countrymen understood modern finance concepts. I'm a 42 year old self-made millionaire but I've never grossed more than about $115,000 in any year for my entire life. I credit my success mostly to the fact that I never bought a home. I rent nice places. It makes me very flexible.

Dear Carla,
Poor reporting, misadvised comments and efforts to sensationalize stories' content by instilling fear by the Media have been the cause for escalating the demise of our financial and credit markets. I blame the Media for exacerbating the problem. It's widespread, in every sector of our economy. The stock market, values in housing, commodities, and the broader economy have been hurt by reporter's quest for ratings.

As a Certified Mortgage Planning Specialist, I work under a strict code of ethics and professionalism. It would be nice to see News Organizations perform in a manner that instills confidence in it's readership.

FHA has been around a lot longer than me. The reason FHA has been out of favor for loan professionals in past years was simply because Lenders came out with programs that did not require standards of excellence. These Lenders were tempting Loan Officers and steering them to risky loans that paid handsomely. As a result, most of them do not exist today

It's a good thing that we are going back to basics. It's equally good that FHA continues to provide a platform for first time homebuyers to acquire an asset that, in time, will provide wealth in the future. It has become increasingly important for existing homeowners to refinance into today's low rates. FHA has been an integral part of my business and always will be. Without FHA, we would be in a much worse situation concerning our housing industry.

We need more introspection among our citizens. Those that govern our businesses that are "too big to fail". Those that introduce our legislation that becomes law. Those that make decisions that affect others in any way. If those decisions put a pit in your stomach, you're doing something wrong. Please, stop, take a deep breath and do what's right for you, your constituents and the fine Citizens of this awesome Country of ours.

Carla, as a previous emailer has noted, the current FHA financed mortgage insurance is 1.75% and the monthly MIP is .55%. FHA has tightened up its own underwriting guidelines in the last few months and most FHA clients are now required to have a credit FICO of 620 or more for approval. FHA is serving the U.S. economy in 2 very significant ways to help get us out of the recession.

1. a current FHA borrower may obtain a streamline FHA loan to lower their payment and interest rate without having to obtain a new appraisal. One of the biggest problems we have right now is for Conventonal borrowers who wish to lower their interest rates but current market values have declined on their homes and are preventing them from taking advantage of lower rates. FHA streamline refinances do not have this restriction. Therefore, most current FHA borrowers can reduce their monthly payments and that cannot be said for conventional borrowers.

2. FHA loans are helping good first time homebuyers obtain truly affordable housing for the first time in 5 years. 3.5% down payment is within reach of many first time buyers and many of these buyers are buying bank owned properties. FHA is helping to reduce the current housing inventory, getting young professionals into their first homes and allowing them to take advantage of the $8000 tax credit put out there to help stimulate the economy.

If FHA is truly concerned about loan delinquencies, they can continue to modify their underwriting guidelines on DU and LP to reduce future delinquencies.

Bret in New England:

Since you commented on how my spending is beneficial to the economy, I'll even point out one more thing – If I had bought said house last year for $100K more with 20% down, all of that paper worth would have been wiped out (for me and the lender) and I would have either no equity or very little, still leaving me with a LTV equal to an FHA loan! Instead, I gave my wife a wedding she never would have dreamed of, had a great time with friends/family, and went on a very memorable honeymoon and pumped some money into the economy. Now that it looks like the biggest hit to housing could be behind us (yes, I too think it will go down a bit more but now still is a great time to buy), I can still take out an FHA loan and have a LTV the same or better than if I had bought last year.

I just fail to see where people have a problem with FHA loans. The only real difference between the FHA and convential is the down payment. FHA borrowers still have to meet debt to income ratio requirements, credit rating requirements, verify income, and have a stable job history. The only thing they don't have to have is 20% down. And again, if you are a first time borrower in an expensive area, good luck with coming up with enough money to meet what would normally PURCHASE a home in vast portions of the country.

It should not be the stated goal of the US to increase home ownership. What got us into this mess is politicians who think like that. No one is entitled to owning their own home.

I have a credit score of 770, 3.5% for down payment and more in the bank. FHA is allowing me to purchase a home that I would not have been able to 6 months ago. The problem is not FHA but GREED! For a responsible person like me the program is one of the best things.

1. Until people stop living beyond there means it does not matter what program they go through.

2. How many of the late paying FHA homeowners are late due to the lost of income.

Before you go preaching get all the facts!

have you ever heard the saying when you ASSUME you become the first 3 letters of the word.? Well, it's seems like this article has more ASSUMING than facts.

Fair Issacs is anything but fair. They don't even divulge the metric by which they calculate the FICO score, so there is no way for us to know if their formula is based on what they say it's based on, in the information they voluntarily distribute to the public and the media.

Lenders no longer check credit reports anymore. It's one number they use and that number is created by a private company, with no oversight, that contributes mighty sums to congressmen/women of both parties every election cycle. And yet this number is what nearly all consumer credit is based on.

And the working class couple that buys a home with verified income, has taken home ownership classes (required by FHA), has no delinquincies on their credit reports (checked by FHA councelors before you can even enroll in a homebuyer's education class), ar the bad risks, according to this article.

750+ FICO scores are the next AAA rating.

For those of you who are not understanding the magnitude of our housing risk in this sliding economy that we are facing and will be facing for a long time. FHA intention is good for folks who wanted ownerships in a stable economy, not when they are downing so little while paying insurance premiums up front and each month for a property that will takes 5 plus years to break even. Do the maths and see for yourself? Also, there are millions of homeowners accross America who wished to down side or just to sell but can NOT do so, because they are upside down or barely hanging on…

Its tough to give any credance to an author who can't even gte the most basic facts correct. The FHA upfront risk premium or UFMIP was change months ago. It is now 1.75% instead of 1.5% and the monthly premium is .55%, not ,50%. This looks like someone who needed to submit an article and did a quick read on someone else's from last year.

FHA loses are much higher than usual due to the fact that FHA borrowers are much more susceptible to job loss in the current economy than conventional borrowers. These are, for the most part, first time home buyers and families in the lower portion of the income scale. Whether you have a 600 score or an 800 score, it's tough to make your payments ina timely manner when you don't have a job.

a fico score should not be weighed so heavily on your ability to get a loan. no one can honestly tell you how they are calculated. what happen to manual underwriting i don't care what your score is i want to see what you make and everything you spend that willl tell me if you get a loan. insurance now uses fico scores what happen to your driving record or how many claims you have made. not everyone with a 620 score is a deadbeat and not everyone with a 750 score is credit worthy

April Fool's Day was a week ago. How can an article with so many inaccuracies make it on to such a popular website? Did anyone mention the debt to income ratio requirements? Look that one up before your opinion states that loans are given to those who can't afford it.

Looks like most comments are from people who want FHA to socialize mortgage risk. I don't own a home yet, though I have a score of 800+ and 1/2 mil in savings. But I believe people should honestly put down 10% skin in the game, poor or rich. This whole American housing industry is a 'GIANT PONZI SCHEME". Govt. is to blame for it, biasing tax laws excessively towards homeowners and making foreclosure easy on people. In other countries, it would have been impossible to just walkway from irresponsible borrowings. Home prices going up by easy loan is not a good thing for the long run, as we just saw.

To Aaron in Vernon Hills:

Good for you. It's people like yourself who are helping this economy out. We need to increase the sales and continue to decrease the surplus we've had in the housing sector. This will eventually push values in the right direction. Regardless of whether you spent the money on the house or the wedding and honeymoon (I personally agree with you and wouldn't spend the 20% right now on a depreciating asset – a house) the bottom line is you're spending dollars, $50,000 from what you said. That's great. When over 70% of our GDP is relative to consumer spending, it's imperative that we continue our habits and spend as best we can without jeopardizing our retirement and other worthwhile depositories. Yes, FHA has taken on way more risk than they ever intended. What's the solution? Should they not lend? It's great that you got a good rate and while "Bob" believes it's a crime that you did without the 20% down, maybe "Bob" needs to realize that whether you put the money into the house, which you may not recover for many years, or whether you spend it, is totally not relevant. And for "Bob" when he thinks about this and says, "What about the person who didn't spend the money into the economy and still bought the house without the 20% down payment?" Yes "Bob" that person is now paying Homeowner's Insurance, property taxes, etc. and still hopefully got a low enough rate where they can still contribute monthly as a consumer into this economy because of the fact that they got a low enough rate where they can do both (a. own a house and b. still have spending power). Wow. Well, maybe I'm wrong. Maybe this isn't what it takes to get this country and economy back on the right track. Maybe we need to continue this hypocritical and pessimistic outlook that many like "Bob" have adapted. For those that stay positive, keep doing what you're doing, and we'll get there.

This article is so ridiculous because people are losing their jobs all over the country and will have problems paying their mortgage regardless of the type of loan. FHA loans are so different from the liar loans and subprime loans that were given in the past. They require extensive documentation on employment, investment accounts, and track every penny spent in the last few months.

My wife and I were fortunate to get a FHA loan to purchase our first house. We have 760+ credit scores, make over $130,000 a year, but do not have a substantial down payment. All of our extra money goes to paying our school loans. Just because we make decent money does not mean we are able to save for a 20% down payment on a home that we can more than afford the payment. We have worked very hard to educate ourselves in order to get good jobs.

As long as the loan approval process is stringent and minimum credit scores are observed, everyone who qualifies should be given a chance as it is imperative to stimulate the economy.

it should be the stated goal of the US to have as high amount of home ownership as possible.
Homeownership makes for a stable society.

Countries like for example Singapore have 97%
home ownership. Singapore was a 3rd world country
30 years ago and is now very prosperous. The government
took an active role to house its people.
Our government once did as well in the 1930's.
I find the article flawed in the assumption that we should
accept that private lending should dominate and that a certain segment of society " that can't afford therefore should never own a home"
Private lenders got us into this mess.

Also the article is coming from a place of selfishness.
People thinking about themselves before the whole of
society.

The FHA credit criteria has changed extremely. You have to have at least a 620 to qualify now, where before you didn't even need a credit score. Also, UMIP is 1.75% charged upfront to the client to insure they know whatthey are getting into. Conventional lending is much better for borrowers, however with the media driving the consumer to reach for the lowest interest rate many people have missed there opportunity to get a low rate with low costs. The "no cost loan" is non-exsistant. Also, realize if these properties aren't bought up it's only hurting all of us.

A) There are loads of people who have paid their bills but have few other factors that raise a credit score.
Ignorant people think the only thing that affects your score is whether you pay ontime. Knowledgable people know thats false.
B) There are many many homes nationwide that are low priced and in lower quality neighborhoods where No one with a good credit and 20% down would buy a home.
Those homes need to sell, and often are sold to people with low income as small mortgages that they can afford with FHA.
C) The Vast majority of FHA loans – As you people seem to want to criticize are just fine.
D) 92.5 out of every 100 fha loans to people of lower credit that had lower cash down, are paying their mortgages as expected.
In this economy, people of all levels of income and credit are losing jobs, and then homes. How is that related to FHA mortgages?

are you high and mighty people convinced that all 3 million people who lost jobs since January 1st all low credit score FHA, low income workers?

Is that who's about to all lose their homes?

Last, the real problem has nothing to do with credit history, it has to do with a Skyrocketing cost of living over the past 8 yrs thats pushed everyone in the country who was scraping by regardless of income, into the red and into charge accounts.

And to everybody else that is bad mouthing the FHA program, I would suggest getting the facts before you jump to conclusions. This article was nothing but scare tactics.

To anybody that thinks unless you have 20% down you don't deserve to own a home, get real. Do you have $70,000 to put down on a home in an expensive metro area? If not, get down off your high horse.

When the FHA is used as it is intended, it helps those that are solid 'risks' (everybody is a risk if you think about it) buy a home when the commercial lending industry turns them away.

Also, those of you that already have a home, it would be worth a lot less if not for lending programs like this. How do you think prices go up? New buyers entering the market. If you don't have new buyers, you don't have others moving up because there is nobody at the bottom to buy the homes.

To Bob in Chicago:

I don't have 20% to put down because I just had a wedding that cost $40,000 and went on a $10,000 honeymoon to Costa Rica. All paid for with cash out of savings. Still had money left over in savings even after all of that (more than $10K actually, all saved in a little over a year). Just not $70K to make a 20% down payment on a $350K home.

Why spend that much on a wedding and honeymoon? Why not? House prices were way too high and coming down fast so why bother sinking money into a place and losing every dollar I put into it and then some? If I had bought this place a little over a year ago it would have cost me $100K more. Gee, even putting 20% I'd still be under water.

If I were you I wouldn't be so quick to jump to conclusions.

Amazing! All of the lenders that caused the subprime crisis are now reaping benefits of FHA financing and causing even more problems and with bailout money to boot! Stop the bailouts! Let lenders retain some of the risk and either sink or swim!!

Well the reason that default rates are up… well job losses are the most in 25 years!

I'm sorry, but your story is horribly biased and more research is needed before you try to persuade the public that FHA loans are bad or not worth it.

In all honesty, editorialists and people writing articles for mass distribution should really research their sources and stop SCARING everybody. FHA is not the problem, lack of jobs and lack of confidence on the part of investors are the problems. This lack of confidence is self-feeding on the fear generated by poorly researched articles as this one. Most problem-loans were created by banks, investors and wall street "geniuses" looking for higher profits disregarding the soundness – or lack of it- of their financial instruments. 80-20 loans? negative amortization loans? those were really BAD loans. FHA loans are very solid and based on the ability of people to pay back. But if they lose their job, what can they do? DO A LITTLE MORE RESEARCH WHEN POSTING AN ARTICLE, PLEASE.

RE: Posted By Aaron

You sound like a moron if you make $135K a year and dont have 20% to put down.

You sound like most idiots that don't save their earnings when they should be for a rainy day or loss of their job.

How about we go back to a model which is something like a 20/25/30 rule.

20% down, 25 year loan, no more then 30% of your take home income can be used on the mortgage payment.

20% Down Required
This means that you have to put a significant amount. Anyone who doesn't is a risk for a loan and for walking away. For those that complain 20% is a lot down today, well guess what, if we required this before like banks use to, then prices wouldn't have gotten out of hand. (you can put more down if you want to make the 30% income part on a more expensive house).

25 Year Loan
Most people aren't in a house for 25 years let alone more but make this the standard and do not write loans for any period less.

30% of take home income
This is the one to not only protect the owner from getting in over their head, but also so that they can save money, have other money for bills, expenses and spending. If they lose their jobs, if they SAVE, then they should have the ability via unemployment and savings to weather a long storm.

If someone wants to purchase a house that is more then their 30% take home allows, then just put down a BIGGER down payment to where the amount of your loan = no more then 30% of your take home income.

It's pretty easy here to figure out that we need rules like this in place.

It protects the banks, owners, lenders, etc by putting formulas and regulations in place.

Thank goodness most of you saw the comedy in this article! The only reason I opened it was because I needed a good laugh. I am not really sure of the writer's motivation to write this article other than to try to scare the wits out of people. FHA is fine they always will be fine for the reasons everyone who has posted a valid comment gave. They recently dropped out of the 95% loan-to-value cashout refinance field as well. Just like conventional programs if you do not have a 700+ credit score the stars have to be lined up just right in order to get a loan now. I think our author would like everyone to pay cash for homes now. One thing she didn't note is that out of all of the percentages of the 90+ lates on the mortgages HUD also works with those people to keep the loans from going into default. I hope you got a lot of hits for this JUNK article Carla. Hopefully your next article will be better.

The number of FHA approved lenders increased more then five times over the past year. From 600-something to over 3000. A lot of these new lenders are the exact same people that were running subprime lending (often sitting in the same offices, and only changing the name of the company). You can have any credit standards and still fail if your agents are dishonest. Also, people, lets face it — the reason it's hard to get a loan from a commercial bank is the fact that those banks went back to historical lending standards — 20% down, credit score 750 or more. Lending over $700,000 to somebody who puts 3.5% down and has a score of 620 IS risky. Especially in this economy. That's why banks don't do it. They can't afford to lose any more money. Government wants to continue to spike home ownership rate by legislating risky lending by FHA/FNM/FRE (this giveaway of easy money keeps the bubble artificially inflated), but these things inevitably blow up and require billions and billions of dollars to bail them out again and again. Guess where the money for the bailouts is going to be coming from? That's right — your taxes (and mine)…

Yes the reoccuring insurance is only .5% each year, not month, but instead of nitpicking consider the whole article. The reason for the high delinquincy is still due to marginal borrowers (620 is still a terribly bad credit score) putting so little down that they have no skin in the game. Additionally, the competition amoung lenders that get paid only when the loan closes causes many to hire pliable underwriters who to retain their jobs are willing to approve less qualified applicants. Brokers in particular advise they can get people approved when major lenders say no. Often they advise borrowers how to clean up their credit reports by getting legitmate delinquincies removed to improve the scores enough to qualify. The government loosens the standards and looks the other way because we all know that otherwise even fewer would be able to buy homes and that would not be good for our economy. This illustrates the paradox of all the TV Reporter comments and public opinion that the major banks aren't lending enough to stimulate the economy. In order to lend more, the lenders must reduce their standards which creates higher delinquincies and at the end of the day, we are back where the problems began.

Debbie How can one say the guidelines are tough tough tough when they allow credit scores of 580 or below and 3.5%down, with Borrower showing no stability of prior payments. When good borrowers with higher scores but less than 700 have to put 20% down. Where is the commonsense in that. Plus the charge of 1.750% up front on loan plus insurance on loan for 5 year extra. Who is making the money on these risk factors, when if they do default it will be the tax payers who pay.

People who don't make significant downpayments are risky because when/if house prices drop, they can walk from the houses without any risk.

If buyers only put down 3%, when house prices drop 10%, they are better-off letting the houses go to foreclosure and buying a new one for less money.

Your article this morning suggested 'FHA was the only way to go'. This afternoon's article suggests perhaps the first article was published prematurely. I'm confused as to 'what you're trying to say'. Please clarify.

The best thing to do is abolish federal housing programs and federal home lending programs. In case nobody noticed, that's how we got to this point after 40 years of government involvement in the housing industry. Most government welfare programs like the FHA housing programs are destined for failure. Not all people are capable of home ownership. Once are clueless failing government leaders figure that out, they can make some real progress in resolving the mess that they helped create. When a governement(taxpayer subsidized) program offers 0% or 3% down programs to prospective purchasers, the owners have no financial interest in the properties. Quite frankly, its a blantant rip off for taxpayers to have to foot this massive bail out bill.

2 Problems for housing recovery not addressed:
1) There are no "bank statement" programs for self employed people who DO make money, and can prove it, but don't have W2's/1099.
2) For recently problemed borrowers making adequate income but have sub 620 credit for whatever reason AND LOW verifiable Debt Ratio, there are NO programs. FHA should be 560-580 minimum credit. So, be tougher on debt ratio, maybe even loan-to-value, but let them buy/refi.

In theory-and in practice for many years-the FHA program helps folks who wouldn’t otherwise be able to afford a home, make the purchase.

Anyone see the irony in this statement?

And you wonder why we're in such a mess.

NOT EVERYONE SHOULD OWN A HOME AND NOT EVERYONE SHOULD.

Why are we sooooo determined to put people in homes. It's stupid. This is why our country is in a mess and why all of our houses and homes are over-valued.

Samantha Chicago, you probably missed the point.
As a lending agency, it's their job to tell "risk", not only "lie". While lier loans is one of the greatest risk, there are other risks including "so many people have lost their jobs". The simple fact that while economy is in bad shape and FHA is increasing it's lending cap is an indication it was inviting disaster to happen to it.

And as a tax payer backed entity, bankruptcy is not an easy option for FHA, and more tax payer money is in danger because of the decision made by FHA to increase lending at the beginning of the financial crisis.

So while it's true the article is "partial", I think it caught the most important part of the story.

If the homeowner has lost his/her job, then they cannot afford the payment regardless of how much in the way of a deposit they put down when they qualified for the loan. Bring back the jobs and the number of ordinary folks defaulting on their loans will also drop.

dear media, please research your facts a little more and quit scaring everybody. The risky people to lend to were the ones doing 2 loans to cover the balance and had credit scores of 750+. the more important the credit score is to a lender the more the lender is just a monkey pushing buttons.
I still haven't heard anybody mention this whole bubble was caused because mortgage lending & realtor fees are soley commission based, they overstated values and railroaded appraisers. once the house prices exceeded affordability of the average consumer they had to become creative to keep their own income steady.

The article is pretty weak.
It draws conclusions that the FHA loan, lenders and buyers are the reason for higher defaults without providing any facts to support that.

The FHA loan is the only loan available for first time home buyers or those with little money down.
Take those loans away and your job as an editorial writer would probably be focused on things like depression level unemployment and market conditions.

Maybe the writer is one of those bought a house when things were over priced and got a high interest rate compared to today's rates.

You can get a 30 year fixed FHA loan with 4.4% interest(points) on homes that are going for 30-40% of what they were 2 years ago. If anything you should be writing about how this is the best time to invest. The market is at bottom. Advise people not to buy when the market is at the top.

Hud will come out of this smeeling like a rose. they should continue to book loans. FHA did less biz when values were skyrocketing. Booking loans now, avoids big losses. Loan booked in 2005-2007 were booked at the peak. The default is related to the unemployment numbers. It was a blessing they did little business during the boom

That is ridiculous to put that a montly mortgage insurance of 0.5% is required. It is actually 0.5% if the loan is 95% of the value or less, and 0.55% if it is up to 97.75%, depending on state. And that is yearly, not monthly. So it ends up being 0.042% to 0.049% of the loan amount each month. Or basically $50-$55 for every $120,000 borrowed. I'm a loan officer, and saying these things about mortgage insurance is why I'm hearing people say they won't take an FHA loan. They then are losing them homes because it's too late to refinance out of their higher rate or adjustable. And the default rate is right about in line with the unemployment rate. Less jobs = higher default. FHA loans are fine. They are actually better options then conventional frequently. Mortgages are just more costly to fund, service, and pay for the defaulted one these days. 80% of the US is 620 or higher, and if you can't get the middle of your 3 scores(2 of the 3) at 620 or higher, you don't deserve a mortgage. E-mail me at scott.borschke@supremelending.com with any mortgage related questions.

Carla, I do believe you were "fried" when you wrote this horribly inaccurate story. I would expect that a news source like CNN would actualy check the facts prior to letting a story go to print but I guess even CNN has had to make cutbacks in this economy. FHA requires mortgage insurance on all loans regardless of the Loan to Value ratio of the home for a minimum of 5 years, on 30 year loans. Also the upfront factor is 1.75% of the loan value and the monthly premium is .5%, or .55 if over 95% LTV, of the monthly principle & interest payment. These fees go to FHA to insure losses against default. THe main reason FHA Loans are gaining market share is because it has become impossible for 70% of Americans to qualify for conventional loan products. In an era when home values are falling 20% or more in most markets, See Case Schiller, and people are losing their jobs few households have a 740 credit score and a 40% equity stake in their home. FHA has become the only option for most Americans. Get your story straight prior to going to print!!

Take a look at the by-line "posted by: two cents editors" That somewhat explains the story.
I've done FHA loans for well over 20 years. Out of the 50+ loans I've done this year only a handful have had credit scores under 700. Meaning, many borrowers are not big credit risks, they just either didn't have or want to put up a large down payment and still had good qualifying ratios.
Even with the Up Front MIP and .55 annual/12 is a lot less and easier to handle than Private MI. (if you can find it)

To Aaron in Vernon Hills IL.

If you have a FICO score of 800, have a low debt ration, and make $135K a year–Why don't you have 20% to put down? Something doesn't add up

FHA needs to tighten down on the lenders who are abusing this privilege and approving loans that should not be approved. Why there are lenders out there who will still consider a 500 score as acceptable has certainly got to raise eyebrows. Those have never been mortgage payors and a slim percentage ever will be. Tightening the credit scores by investors is not all bad, let's just not go too far.

I would like to request an outline of available conventional mortgages out there that finaince over 90% with associated interest rates and MI (along with discount points). It's not an FHA issue that is driving more people towards the program – it's simply market driven.

This author is right on. They had to raise the FHA insurance premium to cover all the defaults. That alone is telling. All the subprime borrowers and Alt-A borrowers only have one option now and that is to go FHA. These loans are more strict on paperwork required but as long as people are losing jobs there are going to be a lot of defaults. You only have to have the job when you apply and until you close to qualify.

I agree with Debbie from Dallas, Tex.
You should first know & understand what you're talking about. Obviously you don't.
You're wrong about the UpFrontMIP & the monthly payment for PMI. You're also wrong about the Credit Score being as low as 600. Fannie Mae & Freddie Mac want a minimum of 620 & will probably raise that in the near future.
There is also more documentation required to do an FHA loan than a Conventional loan.
Know what your talking about before you post any kind of editorial.
I see this article came from "Two Cents Editors". How appropriate the name is.

Is there anyone in our goverment capable of actually looking into a problem before a full meltdown? Clearly the majority of FHA delinquencies are coming out of a handful of FHA licensed lenders. It's easy to see where these loans are originated and just as easy to stop the problems at the source. Then the pool of funds can be allocated to resonsible lenders and credit worthy borrowers.

We need to get the FHA limit back down to the $417,000 level nation-wide immediately so that only conforming loans are in the program. There should not be any jumbo loans being stuffed into the FHA. Jumbo loans are way too risky in terms of defaults.

When the median income is ~ $40k per year and the median home price is $400k any way ?

We're not all going to be real estate tycoons. The housing business needs to come back down to earth.

You're right, people should stop blaming the banks and mortgage companies for this mess, but that doesn't mean they should push the blame somewhere else. Take a look at how we got into this mess…people not doing their due diligence and getting themselves into mortgages they couldn't afford in the first place, much less after one person losing their job. Where did the sense of entitlement in America come from, and what happened to people being responsible for their own actions? Unemployment (and the economy for that matter) are cyclical in nature – when people freak out and stop spending (responsibly) then companies can't afford to have employees, people lose their jobs, and we start all over again…

In regards to the first comment. The FHA is not "the mortgage industry". The FHA is a government entity that your tax dollars support. The only difference between an FHA and "true subprime" loan is income documentation. You can still qualify with 50% debt to income ratio which is really 70% of net income. It is very easy to default at this percentage. It is even easier when you have someone with a credit history of never paying on time.

Carla is mistaken about the details. Currently the upfront mortgage insurance premium is 1.75% and the monthly renewal is .55 divided by 12/month (try multiplying .5 x a $200,000 loan=$1,000/month.) Also, you need a 620 credit score now-investors aren't buying below that. Without FHA this year and most of last, there wouldn't be much of a real estate market, and the value of everyone's home would go down even more.

I don't think that this article takes into account that the reason FHA has come back is because values have declined enough for FHA to make sense again. As a loan officer for 18 years, we did a lot of FHA until the late 90's when values moved up beyond their scope.A borrower must fully qualify for an FHA loan. There is no stated income and the property must also qualify for the loan. IMHO it is a great way to go for everyone involved!

Actually, it is 1.75% UpFront MIP and .55% annually until the loan reaches 78% of the original value.

Articles like this can only be referred to as partial baseball scores. You are not telling the whole picture. Sure, when conventional loans were easy to come by and qualifying a borrower was a joke, there was no reason to go FHA. However, FHA has never had a liar loan and their qualifying standards, including the appraisal is tough, tough, tough. Maybe the fact that so many people have lost their job has something to do with the increase in delinquency, not that the borrrowers did not qualify from the start. Your reporting should drill down on the facts more and not recite scare tactics.

Wow, how about scare tactics and bad information! .5% each month? Try multiplying the loan amount by .5% and dividing that by 12. THAT is the PMI payment each month. How do I know this? Because I'm one of these so called risky people that are flocking to FHA. I don't consider myself to be that risky though. I'm educated on the process (unlike the author), make $135K a year, bought a house for $100K less than what it's bubble price was ($350K instead of $450K), have low debt to income (and fall within the recommended bounds for a convential loan even after mortgage payment, etc are factored in), and have a credit score just touching 800. I just didn't have 20% to put down. Wow, I sound like a MAJOR risk, don't I?

FHA loans are nowhere near as toxic as the subprime loans were. Most FHA lenders are now requiring a 620 credit score and you must be able to go full doc. Unlike the hay day of the subprime market 580 credit score 100% stated income stated asset loans with inflated values.

Home prices may fall a little more, but you’re not going to see those huge declines we have seen over the past couple of years, which will make it less likely that we will see people fleeing their homes.

The more negative information the press puts out there, the longer it is going to take for us to recover.

Remember fear creates panic!

Check your facts before you write your articles. FHA is now charging a higher up front fee along with a higher monthly fee for those who choose to put only the 3.5% down to help with the foreclosures. Also, almost all lenders are increasing their credit score requirement to 620 which will definitely weed through the bad buyers. Who we really need to blame is all of the companies that have laid off people. They could afford the mortgage payment when they bought the house but due to job loss they now struggle to make the payment.

People, stop blaming the banks and mortgage companies. Take a look at the unemployment figures. Take a look at people's assets being cut in half. Take a look at upside down values. Take a look at the Bernie Madoff's of the world. This is what happens to a country that places significant value into stuff/things and what other people think. Banks aren't to blame. Everyone has a choice. Unfortunately, for many…a choice was made without thier consent.

The FHA program isn't the problem, its the lenders that aren't willing to say 'no' to those borrowers who can't afford. HUD needs to start pulling FHA licenses from those lenders that aren't playing by the rules.

We need more info as to WHY the default rate is higher for FHA this year. FHA loans should be no more risky than they have been in the past 20 yrs as the credit standards are actually higher now and they HAVE ALWAYS required proof of income. True, FHA accepts lower credit score but that risk is balanced by stricter budget ratios as well as stricter documentation of income. I can assure you that should FHA change substantially how it approves loans, we would be in a much bigger housing mess as very few people would be able to buy homes. IF you think the market is bad now, what do you think would happen if you took 70% of the buyers away?

It is not the right of every American to own a home, nor is home ownership the best option for everyone.

For decades, the home ownership rate in this country remained roughly constant because the mortgage lending industry worried about risk-managed, profitable banking and not about getting a higher home ownership rate. Lenders are not in the business to make sure everyone can buy a home; they're in the business to be profitable businesses.

Then, government stepped in…

When will the mortgage industry ever learn?!?! I want to scream!!!