[quote=FormerSanDiegan][quote=bearishgurl]
Amount of MIP deposited (assuming all pymts are timely made):
by 13th month of ownership = $17,587.64
by 25th month of ownership = $22,403.96
by 37th month of ownership = $27,220.28
Is this enough cash to protect HUD (another acronym for “gubment”) if this borrower should default in these first three critical years??[/quote]
It depends on the default rate…[/quote]
From an 11-15-11 article:
The dangers of a low rate environment
Let us assume we operated in a truly free market (which we don’t) then an interest rate would truly reflect the risk of lending out money to a venture or a securitized asset. Yet in this current market we are largely operating in a distorted netherworld of easy money. Is there really almost no risk in giving a 30 year mortgage to someone in this volatile economy? Absolutely but current mortgage rates reflect an almost risk free bet that the 30 year note will be paid in full. This reminds me of Taleb’s Black Swan where you are right until you are wrong. Home values never went down on a nationwide basis prior to the Great Depression, until they did. This is why problems are now cropping up with FHA insured loans:
FHA defaults are now surging as a percent of the overall mortgage market. Of course this would make sense since FHA loans stepped in largely in 2008 and going forward for the low down payment market. It should be no shock that things are getting bad quickly because a low rate can’t make up for a lost job or low income growth.
And a March 2010 report (which preceded the passing of the current [lower] FHA limits and MIP rules):
…About 9.1 percent of FHA borrowers are in default, having missed at least three payments as of December 2009, a statistic that has gone up from 6.5 percent a year ago—which is a 40 percent increase in this statistic in one year. Although the FHA expects the tidal wave of defaults to gradually abate over time, assuming perhaps an “Earlier Recovery” scenario, there are signs that the reduction in real estate values may also be contributing to the growing defaults and claims debacle.
