I’ve posted a few times before here that I have never been in favor of 3.5% down mortgages (FHA 203(b) plan). Historically, the FHA has always had a very high default rate on 1-4 unit properties where they have guaranteed a mortgage under this plan.
Especially with the ridiculously high up-front and monthly MMI required with these loans made in recent years, of course these buyers are underwater from doc-signing forward and on into oblivion. In addition, MMI on these newer loans can no longer be canceled. Loan payoff or refinance to conventional financing is the only way to get rid of the MMI (now “MIP”). Do I have this correct, HLS?
As such, the FHA 203(b) program is nothing more than a debtor’s prison for “glorified renters.” In any case, the FHA loan ceiling in ALL US markets should have never been more than $300K, tops. This program was never intended for move-up and “luxury” home purchases. It was created in 1934 in part to assist low and moderate income buyers to purchase a “decent” home for their families.
3.5% of $300K is $10,500 and that is already a miniscule downpayment on a $310K home. That is not enough skin in the game to prevent ANYONE from walking on their mortgage if owning the property becomes the least bit inconvenient for them LET ALONE anyone being able to put a downpayment of ~$20K on a ~$565K home (using the current SD County FHA loan ceiling of $546,250 for a SFR).
The monthly FHA MIP payments are now so burdensome that they could cause a family to default all by themselves due to being a “monthly addition” to PITI. This problem is especially pronounced with FHA buyers who purchase properties with longstanding and substantial Mello Roos payments and also HOA dues in addition to PITI. In spite of low prevailing fixed interest rates, these addition(s) to PITI cause said FHA-mortgaged property to cost far more per month than if those same buyers had just rented it.
I don’t think the current up front and monthly MIP is or will be enough to compensate for the agency’s current and future losses from strategic defaulters and walkaways. As always, we’ll all be left holding the bag.
