FHA loans going to “Rebound Buyers” just ~3 years out of foreclosure/BK

[bearishgurl]

The example shown here is in a very low-cost area in the “remote” IE. HOWEVER, the subject ATM’d his former residence to death before losing it, buying TWO luxury vehicles, discharging $45K in CC debt and then summarily defaulting ….

http://www.latimes.com/business/la-fi-rebound-buyers-20121114,0,2826111.story?track=rss&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+latimes%2Fmostviewed+%28L.A.+Times+-+Most+Viewed+Stories%29

…The FHA, which backs nearly 8 million loans, is helping rebound buyers recapture the American dream, boosting the housing market in the process. But that’s touched off a fierce debate about the financial and ethical wisdom of bankrolling borrowers who contributed to the last housing bubble — and the potential cost to taxpayers.

The agency has suffered deepening losses in the last three years that have put it under enormous scrutiny.

Created during the Great Depression to revive the devastated housing market, the FHA doesn’t originate loans. It guarantees mortgages made by banks in exchange for insurance premiums. The agency now insures more than $1 trillion worth of homes. This year it has backed roughly 14% of all mortgage originations, according to the trade publication Inside Mortgage Finance.

Critics worry that the FHA is foolishly allowing marginal buyers to get loans just three years after foreclosure with as little as 3.5% down. What’s more, the agency doesn’t even track how many rebound borrowers it backs.

Exactly how much money is hemorrhaging from the agency could be revealed Thursday, when the agency files a self-evaluation report to Congress. Analysts say the FHA could request a bailout from the U.S. Treasury for the first time in its history.

What’s unclear is how much money the agency needs to stay afloat. The Housing and Urban Development Department, however, projects $13 billion might be needed.

“It looks uglier and uglier for the FHA,” said Anthony Yezer, a George Washington University economics professor…

Besides the obvious risks to the agency (which taxpayers have and will “prop up” when it makes too many of these bad loans), I don’t understand what it is that these new “buyers” actually “own,” what with FHA’s latest hikes this year of its up-front and monthly MIP premiums. They’re “buying” but don’t really have any “equity.” How long will it take for these severely-depressed areas of the IE (where entire blocks are near-ghost towns) to show an increase in value where these ~new owners can sell and get out without having to pay costs of sale out-of-pocket?

It just seems as if the foreclosed-upon and/or ~newly BK’d are choosing to make the same mistake again. That is, they are choosing to be immediately upside-down upon purchase of a new property in lieu of renting. So, what’s the point?

At least they won’t be able to take “cash out” of their properties for the foreseeable future.

I can’t imagine this same group of buyers would be able to consummate a RE purchase in more stable, desirable areas.

…Greg McGuff, the Inland Empire division president for home builder Lennar Corp., said roughly 1 in 5 buyers in his region had either a previous short sale or a foreclosure. Many of them are eager to own again and often recognize the opportunity that declining prices and low-interest mortgage rates provide.

(emphasis mine)

[spdrun]

I’d have though that he would pay less in the Inland Empire, even for a 4-bed.

[no_such_reality]

Moreno Valley is remote? Have you seen the bleeping traffic jams on the 60/215 every day?

With a down payment as low as a security deposit on an apartment and a monthly payment at half of what it costs to rent, it’s a no brainer.

[bearishgurl]

[quote=no_such_reality] . . . With a down payment as low as a security deposit on an apartment and a monthly payment at half of what it costs to rent, it’s a no brainer.[/quote]

When you add in 1/12 property taxes, 1/12 insurance premiums and HUGE monthly MIP premiums to the P&I, I doubt seriously it is cheaper to buy than rent every month, particularly in this part of the (gridlocked?) IE. And I don’t see this subset of buyers qualifying for the lowest mortgage rates, either.

How much does is cost to rent an 1800-2000 sf 4/2 there? And are they really “worth” ~$180K today??

[spdrun]

Insurance is about $1200/yr(?). Mortgage (principal + interest) say 6%. Taxes 1.125%. Comes to about $1100/mo. Unless PMI premiums are sky-high, I’ guess he’d be paying less than the $1500-1800 (SWAG) required to rent such a place. Defs not 50% of rent, but still an ok deal.

[bearishgurl]

[quote=spdrun]Insurance is about $1200/yr(?). Mortgage (principal + interest) say 6%. Taxes 1.125%. Comes to about $1100/mo. Unless PMI premiums are sky-high, I’ guess he’d be paying less than the $1500-1800 (SWAG) required to rent such a place. Defs not 50% of rent, but still an ok deal.[/quote]

As of April of this year, FHA MIP’s are “sky high.”

http://themortgagereports.com/7948/fha-mortgage-insurance-premium-april-2012

[bearishgurl]

[quote=bearishgurl][quote=spdrun]Insurance is about $1200/yr(?). Mortgage (principal + interest) say 6%. Taxes 1.125%. Comes to about $1100/mo. Unless PMI premiums are sky-high, I’ guess he’d be paying less than the $1500-1800 (SWAG) required to rent such a place. Defs not 50% of rent, but still an ok deal.[/quote]

As of April of this year, FHA MIP’s are “sky high.”

http://themortgagereports.com/7948/fha-mortgage-insurance-premium-april-2012
[/quote]

edit: spdrun, you forgot to add in Mello-Roos. 85%+ of Moreno Valley has MR . . . and do any Piggs know how many of these tracts have HOA dues, as well?

[bearishgurl]

[quote=spdrun]Insurance is about $1200/yr(?). Mortgage (principal + interest) say 6%. Taxes 1.125%. Comes to about $1100/mo. Unless PMI premiums are sky-high, I’ guess he’d be paying less than the $1500-1800 (SWAG) required to rent such a place. Defs not 50% of rent, but still an ok deal.[/quote]

Since an 1100 sf 2/1 up to a 1500 sf 3/1.5 SFR in Chula Vista (10 mi from dtn SD and ~1 mi from SD Bay) rents for $1600 to $1800 … and in other parts of SD County, SFR rents are even less than that, what’s the “draw” for a SD County worker to rent (or buy) in the “remote IE” (85+ miles away)?

Were there ever really enough jobs in the “remote IE” (or in “nearby” East LA, East OC) to justify the building of all the tract developments out there which rose up just before and during the millenium boom??

I didn’t think so then and I don’t think so now. It’s just excess overbuilding now (predictably) turning into ghost towns. Given the choice, few workers really want to commute that far on a daily basis. The only entity that benefited from this travesty on CA’s environment is Big Development. They were aided and abetted all along thru the “development process” by our (greedy) elected officials, NONE of whom likely live within even 20 miles of the “shantytowns” and “gridlock” caused by the massive overbuilding they voted in 🙁

[spdrun]

TSOR says that Moreno Valley has a few plastics plants. He may work locally.

Secondly, the house is a recent 4-bedroom (2.5 or 3 baths, probably) according to the article. Depending on HOA/MR and PMI fees, it may be a good deal *for him.*

As to FHA giving a loan to a serial defaulter, it’s not something I’d do for sire.

[bearishgurl]

[quote=spdrun]TSOR says that Moreno Valley has a few plastics plants. He may work locally….[/quote]

Agreed for this buyer. But “a few plastics plants” can’t possibly provide enough “living-wage” jobs for the residents of 80-100K living units which were built in and around Moreno Valley in the last ~15 years.

[spdrun]

So he’ll have a park with some haunted houses surrounding him :)-

[bearishgurl]

[quote=spdrun]So he’ll have a park with some haunted houses surrounding him :)-[/quote]

I guess if today’s scattered “pioneer-buyers” in these “CA ghost towns” want to throw a few cars up on blocks to work on and flip, hang out a clothesline or have a big party and tell their guests not to worry about blocking driveways, they won’t get any complaints from the “neighbors” or run afoul of HOA regs. Its likely most of all of the resident-members of the HOA “Board of Directors” have walked away from the development long ago, lol …

[The-Shoveler]

Guy’s your way off,

I have never seen Any Ghost towns in the IE…
Even in the most remote locations.
Some parts of “Moreno Valley” are fairly close to industrial centers of L.A. (city of industry etc..)
No further out than and probably a lot closer than say Carlsbad is QCOM.
Maybe 10-15 miles down the 60 at most.
Also there are quite a few Industries and warehouses distribution centers in this corridor so there are a lot of blue collar and white collar Jobs that do pay enough to easily afford this.
Not everyone has to commute to San Diego.

There have been a lot of start-up IT firms in some of the better parts of the IE as well,
(HOW IS THAT POSSIBLE!!!) trust me it’s possible.

[bearishgurl]

[quote=The-Shoveler]Guy’s your way off,

I have never seen Any Ghost towns in the IE…
Even in the most remote locations.
Some parts of “Moreno Valley” are fairly close to industrial centers of L.A. (city of industry etc..)
No further out than and probably a lot closer than say Carlsbad is QCOM.
Maybe 10-15 miles down the 60 at most.
Also there are quite a few Industries and warehouses distribution centers in this corridor so there are a lot of blue collar and white collar Jobs that do pay enough to easily afford this.
Not everyone has to commute to San Diego.

There have been a lot of start-up IT firms in some of the better parts of the IE as well,
(HOW IS THAT POSSIBLE!!!) trust me it’s possible.[/quote]

Thank you for you input, shoveler.

Every time I have driven to/from Mammoth and South Tahoe thru the back way in recent years, I saw places like Adelanto and the Victor Valley mushrooming bigger and bigger with new (small lot) construction. Off SR-395, there are tile roofs as far as the eye can see on both sides of the hwy … prior to entering the backside of the sierras.

WHERE do all these people work and how far do they have to commute one way? They can’t ALL be “retired.” It’s not a very “desirable” retirement destination.

Or, are all these tracts “relatively empty” now??

I’m referring to the SB County high desert here.

[The-Shoveler]

There are quite a few defense industry Jobs in the High desert area, Edwards and there is another experiment aircraft base in Victor Valley that I cannot remember the name of and FAA has a fair sized installation there as well.

Some do commute to the train station and ride the metro into L.A.
(quite a few Truck drivers make their base there).

[Author]

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