[quote=spdrun]Perhaps this is a back-door attempt to wind down FHA loans entirely.[/quote]
I think it is, spdrun, but the FHA doesn’t need to go thru the “back door.” They can just cease making any more mortgages.
Any buyer who has only 3.5% down and has to finance up-front MIP which is equal to or greater than their 3.5% downpayment is already upside down at the time of purchase (not taking into the account their exorbitant monthly MIP premiums). We aren’t doing this population any favors by continuing on with this sham. They (as well as taxpayers) would be better off if the FHA just folded except to backstop any mortgages they were already stupid enough to guarantee.
The current and future defaults on FHA’s mortgage sizes granted in recent years which are considered (under FF guidelines) jumbo conforming or jumbo will no doubt be enough to deplete the MIP funds currently on deposit and cause it to look to taxpayers for a rescue. It is these very non-conforming mortgages guaranteed by the FHA which will become the cause of their demise.
The FHA didn’t have this problem until about 2004, when they decided to elevate their loan limits above $300K:
[img_assist|nid=17558|title=FHA High-Cost Area Loan Limits 1994-2008|desc=|link=node|align=left|width=85|height=100]
Prior to 2004, FHA-backed mtgs weren’t used very much in San Diego County (termed by the agency to be a “high cost” region). It was used in less than 3% of residential purchases here because its loan ceiling was not high enough to even finance a fairly modest home in a modest area of SD County. Neverthless, residential sales happened, even in a rapid clip during several 2-3 year periods. For example, the FHA loan limit from about 1984 – 1985 was about $77K in SD County. This could finance 96.5% of the purchase of a 3/2/2 in most moderate-income areas of SD County at that time. And the agency still had a weekly “foreclosure (sealed bid) list” of about 20 SFRs and condos printed in the Thursday San Diego Union at that time.
The FHA didn’t need to increase their participation in SD County just because it turned into a “high-cost region” in their minds. They weren’t and aren’t “set up” to deal with all the defaults coming their way, especially the larger ones.
The agency’s biggest blunder was when they increased the ceiling on their high-cost area lending limit in December of 2008 for ONE SFR to $729,750 thus raising it from 75% to 87% of the FF conforming limit. Although it was later lowered in 2012 to $697,500,
… there was never any need to nearly double the limit in 2008 as home prices in most of CA’s high-priced MSA’s had actually begun to fall by March of 2008. By doing so, they placed themselves in the position of financing “move-up” and “luxury” homes to borrowers who otherwise couldn’t secure cheaper financing. This was never and is not today the mission of HUD.
The FHA (and US taxpayers) are would be better off if the agency, going forward, concentrated the vast bulk of their guarantees in lower-cost areas of flyover states.
The 3.5%-downpayment buyer (ESPecially a FTB) is better off renting until they have more downpayment and the ability to qualify for a mortgage under FF guidelines, IMO. By taking on undue risk by nearly doubling their mortgage ceiling in high-cost areas, the FHA made it impossible for themselves to do was they did best … that was to assist low and moderate-income buyers in purchasing a “decent” roof over their heads.
