FHA Exhausts Reserves

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It finally happened… FHA and the Department of Housing and Urban Development are reporting their reserves are now exhausted with a loss coming at the end of the 2012 fiscal year. It was bad enough at the end of the 2011 fiscal year with reserves at just 0.24%. Now FHA is in the red. For the first time in FHA’s 78 year history, they may need a tax payer funded bailout.

How did this happen? When the financial crisis took hold in 2007-2008, subprime mortgages disappeared. Borrowers who could only qualify to buy a home using a subprime loan turned to FHA loans and their minimal qualifying standards. At the time, FHA had no credit score requirements and could use alternative forms of credit to qualify for the loan.

The increase in FHA loans was so dramatic, that many began to wonder if FHA loans were becomming the new subprime mortgage. I blogged about that possibility in the summer of 2008.

Fast forward a couple of years… with the increase in the number of FHA loans being originated coupled with the record number foreclosures, FHA was paying out way more than it was taking in from their mortgage insurance premiums. FHA knew this was coming and has worked to increase the amount of money coming in on the newly originated loans. FHA has increased the monthly mortgage insurance rate annually for the past several years, and looks like it will happen again soon.

FHA is currently saying a bailout may not be needed. Just because they do not have reserves doesn’t mean they don’t have the money to pay new claims OR that they need money from the government immediately. Until they need a bailout to continue to insure new loans, this isn’t a crisis… more of a concern. That said… the day could be coming.

Moving forward, it is only a matter of time before the monthly mortgage insurance rates go up again. If you are waiting to buy a home OR refinance an existing mortgage using an FHA loan, it would be good to get started now. Once FHA announces a start date for the increase in monthly mortgage insurance rates, there will be a rush to close on FHA loans under the current guidelines.

Avoid the rush by getting started today. If you are buying a home in the state of Georgia, I can help you get underway!

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2 Responses to “FHA Exhausts Reserves”

  1. Coming soon – FHA changes « The Mortgage Blog Says:

    […] discussed on this blog, FHA exhausted its reserves toward the end of 2012. This doesn’t mean FHA can’t function. What it means is they don’t have the […]

  2. FHA changes officially announced « The Mortgage Blog Says:

    […] the changes? It is twofold. First, FHA is looking to raise money because their reserves are exhausted. Increasing mortgage insurance and requiring it for the life of the loan would help replenish their […]

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