Many mortgage brokers and lenders suggest many buyers are taking advantage of FHA, which allows for down payments as low as 3% of the purchase price. That 3% can be a gift from a relative. First American Loan Peformance provided the OC Register data Orange County-Los Angeles that estimated that 18.5% was FHA home buying in August. That dropped slightly from 18.8% in July, but increased significantly from 2.3% in August ‘07. Nationwide, FHA home mortgages were even more popular with 28.6% of August home buyers financing with this program, up from 27.2% in July and 9.5% in August ‘07.
The Census Bureau released the FHA loan data for new home sales and it indicated that borrowers used FHA home financing 17% of the time in the 3rd quarter, up from 15% in 2nd quarter and 4% in the 3rd quarter of 2007. FHA finally put an end to the risky down-payment assistance loans on Oct. 1. DPAs, as they are known, allowed the seller to provide the buyer with the down-payment.
According to HousingWire, Federal Housing Administration Commissioner Brian Montgomery criticized DPA. Here’s a clip from that story: “Data clearly demonstrates that FHA mortgage loans made to borrowers relying on seller-funded down-payment assistance loans go to foreclosure at 3 times the rate of FHA home loans made to borrowers who purchase a home with their own down-payments,” Montgomery said at a National Press Club event.
Such FHA home loans are currently one-third of the government agency’s portfolio, he added, and led the agency to book an additional $4.6 billion in unanticipated long-term losses in an annual re-estimate. “No insurance company can sustain that amount of additional costs year after year and still survive,” he argued. “Unless we take action to mitigate these losses, FHA will soon need to provide loan modifications and they could face the possibility of shutting down some more programs or rely on appropriations to operate.” For anyone who doesn’t know the basics on FHA, it is an insurance program protecting lenders and note-holders against loss in case the borrower doesn’t pay. Consumers who get FHA home loans pay a premium, which goes into a pool that covers losses on loans.
