FHA warning~

[The-Shoveler]

For those who get fixed rates and buy the house they want, I guess it comes down to flow.

It looks like a good theory,
But in a world where the fed Gov regulates minimum wage and interest rates, well I guess we will have to wait and see.

Also I am not necessarily advocating wage inflation, just stating what we have seen in low wage inflation and become so use to it as to not be able to imagine what 10% wage inflation would look like, a world most other nations have to deal with.

It is not the norm is all.

[HLS]

[quote=carlsbadworker]But couldn’t the FHA borrowers just refinance after LTV drops below 78% to conventional loan?[/quote]

IF and when someone with an FHA loan gets to 20% equity, who knows what rates will be at that time OR if they will be able to qualify for a non FHA loan.
**There is a very high % of people with mortgages today that cannot qualify to refi to a lower rate for one reason or another. Regardless of equity, income, credit score or assets. They are stuck.

The govt programs like HAMP, HARP, CRAP & PIMP only helped a small % of people.

Taking on a new FHA loan today is going to cost a small fortune over the life of the loan.
The compounded cost will be huge. If the same ‘extra’ MI dollars were used to pay down principal, it would reduce the interest paid by tens of thousands of dollars over the life of the loan.
Most people wont care

IMO if FHA didn’t exist and at least 10%-20% down was required to ‘buy’ a house, prices would be a lot lower and less people would be ‘homeowners’.
This is not what the govt. wants!

[kev374]

My income now is the same it was in 2006, I haven’t got a raise in 7 years…infact wages in my field have gone down 10% so i’m actually doing good to have maintained my payscale.

Those who are getting fat raises – well count yourself lucky because even getting a raise at all has now become unusual.

BTW, the FHA has become a massive sham and nothing more.. it has taken over where subprime left off!

[kev374]

[quote=The-Shoveler]Average U.S.A. home price went from 29K in 1973 to about 125K in 1990.

[/quote]

Current median home price is $213,500 so we’re very close to the touching the top of the biggest home bubble in history, we should get there if this mania continues for a year or two…

http://ycharts.com/indicators/sales_price_of_existing_homes

There was just a report that since 2007 median household incomes in the US have FALLEN 4.4%. LOL!

[The-Shoveler]

[quote=kev374]
There was just a report that since 2007 median household incomes in the US have FALLEN 4.4%. LOL![/quote]

Exactly my point.

The current low wage inflation is NOT normal.

[bearishgurl]

[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]

http://shawnmeldrum.hubpages.com/hub/FHA-Mortgage-Loan-Limits-Historical

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,

http://www.fha.com/lending_limits_state?state=CALIFORNIA

… 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.

[livinincali]

[quote=bearishgurl]
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,
[/quote]

I’m not sure that their biggest mistake was raising loan limits. There biggest mistake was sticking around as the low down lender when everybody else decided no skin in the game and <5% interest rates wasn't worth the risk. You could have probably gotten a low down payment loan if FHA wasn't around but it wouldn't be at prevailing 30 year fixed mortgage rates. It would probably be close to 10%.

Homes are a highly leveraged asset for home owners at the margin and those at the margin set the prices. If you eliminate the leverage you eliminate the marginal buyer. If you like higher home prices FHA and the Fed did everything in their power to help you.

[bearishgurl]

I meant to add that the current up-front and monthly FHA MIP is now too expensive for the low and moderate-income homebuyer for whom the FHA was originally put in place to assist.

[bearishgurl]

[quote=livinincali][quote=bearishgurl]
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,
[/quote]

I’m not sure that their biggest mistake was raising loan limits. There biggest mistake was sticking around as the low down lender when everybody else decided no skin in the game and <5% interest rates wasn't worth the risk. You could have probably gotten a low down payment loan if FHA wasn't around but it wouldn't be at prevailing 30 year fixed mortgage rates. It would probably be close to 10%.

Homes are a highly leveraged asset for home owners at the margin and those at the margin set the prices. If you eliminate the leverage you eliminate the marginal buyer. If you like higher home prices FHA and the Fed did everything in their power to help you.[/quote]

No, livinincali, homes are only a “highly leveraged asset” for those fools (mostly “worker bees” at the mercy of employers) who tend to borrow themselves into oblivion to get into one. Many, many regions of the country have a VERY LARGE percentage of homeowners (over half) who owe 0 to $20K on their primary residence.

Yes, the FHA made a BIG mistake in 2008 when it decided it would be the “lender of last resort.”

They weren’t put it place for that role, either.

[bearishgurl]

The first three listings are SS’s but all are representative of the “bread and butter” SFR’s that the FHA was put in place to guarantee mortgages on:

http://www.sdlookup.com/MLS-130026029-602_Maywood_St_Escondido_CA_92025

http://www.sdlookup.com/MLS-130035707-9653_Medina_Dr_Santee_CA_92071

http://www.sdlookup.com/MLS-120039865-7825_Deborah_Pl_Lemon_Grove_CA_91945

http://www.sdlookup.com/MLS-130023770-3338_Heather_Ln_Oceanside_CA_92056

I could continue to provide samples from all over the county but these types of homes and areas are representative of those on which the FHA guaranteed mortgages with a ceiling of ~$77K in 1984-1985.

I have absolutely NO IDEA what the FHA is doing guaranteeing mortgages up to $697K in SD County. It is beyond ridiculous and will end up decimating their MMI funds :=0

[bearishgurl]

In order for the current FHA debt ceiling to make sense, the ~$80K home in 1984-1985 should cost over nine times ($697,500/77,000) of a similar one today ($720,000)!

As we can see from the above listings, they do not (and likely never will).

So the $64M question is, what is the FHA doing guaranteeing mortgages in markets which are NOT the prospective homebuyers they were put in place to serve?

[livinincali]

[quote=bearishgurl]
No, livinincali, homes are only a “highly leveraged asset” for those fools (mostly “worker bees” at the mercy of employers) who tend to borrow themselves into oblivion to get into one. Many, many regions of the country have a VERY LARGE percentage of homeowners (over half) who owe 0 to $20K on their primary residence.
[/quote]

I said at the margin. Not all home owner are highly leveraged, but most new home owner are. Potential new home owners bidding for the available properties are the ones setting the prices. Move up buyers generally require somebody to buy the previous home unless they decide to rent it and lever up in a new purchase. If leverage was reduced and interest rates were raised then the amount one could bid on a house would be lower. Now there doesn’t necessarily have to be willing sellers at that price, but at the margin there would be some sales and prices would reflect the reality of lower leverage and higher interest rates.

[bearishgurl]

[quote=livinincali][quote=bearishgurl]
No, livinincali, homes are only a “highly leveraged asset” for those fools (mostly “worker bees” at the mercy of employers) who tend to borrow themselves into oblivion to get into one. Many, many regions of the country have a VERY LARGE percentage of homeowners (over half) who owe 0 to $20K on their primary residence.
[/quote]

I said at the margin. Not all home owner are highly leveraged, but most new home owner are. Potential new home owners bidding for the available properties are the ones setting the prices. Move up buyers generally require somebody to buy the previous home unless they decide to rent it and lever up in a new purchase. If leverage was reduced and interest rates were raised then the amount one could bid on a house would be lower. Now there doesn’t necessarily have to be willing sellers at that price, but at the margin there would be some sales and prices would reflect the reality of lower leverage and higher interest rates.[/quote]

If the FHA stopped loaning entirely in CA coastal counties, it wouldn’t have an effect on prices. The FHA was only meant to be a “bit player” in the most desirable locales in the US. Historically, only the most prudent low and moderate-income buyers could obtain an FHA loan in San Diego County. The vast majority of the families in those income categories living in CA coastal counties were (and are) renters (some “permanent” renters).

*New* homeowners (FTB’s?) don’t have to be “highly leveraged,” not even the ones in SD County. The ones that are chose to be in that situation because they were able to secure a mortgage which stretched their budget. There are many alternatives in housing purchases … even in what the FHA dubs “high-cost areas.”

livincali, the amount of “leverage” available to a prospective homebuyer is only important to home values in SOME areas of CA coastal counties, not ALL.

If there are no prospective sellers in a given micro-market who are willing to sell at a price based upon what a buyer using, say, 90%+ leverage can pay, then they will either sell to buyers using typical “80/20” financing, buyers for whom they are willing to carry purchase money, buyers using all cash or a combination thereof. As you know, a “sold comp” is not created until a bona-fide arms-length transaction closes escrow.

The availability of leverage as well as interest rates have very little, if any, effect on the price of housing in CA coastal counties, unless that housing is situated in an area or tract where the overwhelming majority of parcels are currently heavily encumbered with mortgages.

Those “margin” sellers you discuss here are the few left with zero or little equity AND whose property they MUST sell is located within those heavily encumbered markets (discussed above).

In an average 50 yr old SD city block, it is more likely that more owners have 50% or more equity in their properties than do not.

In any case, the current FF conforming mortgage (which requires a 5-20% downpayment, depending on program) ceiling is $546,250 ($151,250 LESS than FHA’s current mortgage ceiling)!

http://fha-loan-limits.findthedata.org/d/d/California/San-Diego

Go figure … :=0

[CA renter]

[quote=livinincali][quote=The-Shoveler]Try the US Gov census.

http://www.census.gov/const/uspricemon.pdf

But I think this is missing the point,

It is the strangeness of the lack of wage inflation since 1990.[/quote]

That’s for new homes only. Which is a minority of the overall home sales.

That was my point we didn’t need wage inflation because people we’re perfectly comfortable expanding debt and leverage in a falling rate environment. Home prices could continue to go up without the expansion in wages because the monthly payment fell with the lower rates.

So the question is what happens when rates go up. If wages continue to experience low inflation then home prices will fall. If wages do experience the inflation you seem to think is a solution then you would expect rates to increase even faster. Of course if the rates expand at a rate greater than wages then home prices still fall. It’s going to be a negative feedback loop that will trap people in homes that are purchased now. They won’t be able to get that monthly payment again and they won’t be able to sell at a reasonable profit until they pay down a lot of the debt. We had falling rates as a trend for 30 years. We had a positive feedback loop to expand debt into that environment. When that changes assets that are bought and sold with leverage will suffer.[/quote]

Exactly.

[CA renter]

[quote=bearishgurl]In order for the current FHA debt ceiling to make sense, the ~$80K home in 1984-1985 should cost over nine times ($697,500/77,000) of a similar one today ($720,000)!

As we can see from the above listings, they do not (and likely never will).

So the $64M question is, what is the FHA doing guaranteeing mortgages in markets which are NOT the prospective homebuyers they were put in place to serve?[/quote]

BG,

The FHA (and GSE’s) increased loan limits and lowered standards precisely when the private mortgage market began to have problems. These loan limits and other changes were designed to bolster the housing market in order to stem the losses in the financial industry. It had nothing to do with trying to help the poor, hapless new homebuyers; it was all about protecting the existing mortgage(and related derivatives) holders.

And livin’ is totally correct about prices being set by new buyers — the buyers who are willing to leverage the most and pay the highest price. The fact that local residents have low/no mortgage balances does NOT affect pricing.

Even if no homes in a particular area are sold, the price is not whatever the current owners “want” it to be. If there are no nearby comps, other comparable areas/homes will set the prices for that area. Housing IS a highly-leveraged purchase in almost all cases. Interest rates, general credit expansion/contraction, etc. play a MAJOR role in the prices of leveraged assets.

[Author]

Posts