In the eighties and maybe up until about ’92, the typical conventional front end ratio was 25 and the back end was 31 or 33, depending on the lender and how long the borrower had left on some payments (perhaps less than a year on a car pymt left).
Like UCGal posted here, the giant thrifts including WAMU (not in CA at that time) and all those institutions insured by the FSLIC kept the loans in their own portfolios 100% of the time and most were fully assumable. In other words, each lender called their own shots (NOT FNMA or FDMC). This worked well, was more private for the borrower and kept the government’s nose out of lending. The only info these “portfolio” lending institutions had to report to the government was their perceived race or nationality of the borrowers upon meeting them as all loan application activities were performed face-to-face (there was no internet). This reporting requirement was in place to show the government that the lender was attempting to eradicate lending discrimination based upon race. However, redlining was still somewhat of a problem (another form of insidious discrimination which was indirectly race-based).
IMO, in spite of laws enacted to the contrary, practically speaking, “redlining practices” among conventional lenders did not fully cure themselves until the bulk of home loans were packaged and sold off on the secondary market and hard-money lending became “mainstream” in the form of “sub-prime” lending. We now know this “experiment” turned out to be to the detriment of the lender, the borrower AND the taxpayer.
I’m not saying I think conventional lenders should still be redlining today to keep themselves afloat. I’m saying I’m still in favor of HFA’s and the FHA because they serve a purpose in this regard. If the HFA’s are managed correctly and do not allow “silent seconds” and other creative timebombs, then I think they work – for certain markets. I think every first-time buyer has to start somewhere, but expensive, highly desirable markets are NOT that “somewhere” if the potential buyer has little or no money to put down.
I believe the current FHA lending limits for CA are excessive.
I have NO IDEA why this program’s lending limits were raised to these dangerous levels. In my mind, the FHA was never set up to help people purchase luxury properties or properties in highly-desirable coastal areas. It was set up to give a first-time buyer and/or credit-challenged person a leg-up into entry-level homeownership. This agency doesn’t have the personnel to manage thousands of foreclosures sure to plague them at these exorbitant lending limits. I feel a $300K limit is currently more than ample to serve CA. If a buyer whose only option is FHA (due to lack of downpayment) feels they have to buy in a desirable (read “expensive”) community and nothing less, then that buyer should rent until they either (1) save more $$ for a downpayment, or (2) concede their true current “station-in-life” and buy what (and where) they can afford with the FHA program. That’s the way it ALWAYS WAS until these limits were raised through the ceiling, the roof and into the stratosphere.
