Thank heavens they’ve put a stop to those risky, "no-skin-in-the-game" loans, or have they? [Thanks L!]
Think we’re beyond the days of people putting little-to-nothing down for home purchases only to later walk away? Think again … and the government is sponsoring it.
For those not familiar with FHA loans, they are loans issued by major banks like Bank of America and Wells Fargo as well as smaller mortgage brokers and the origination arms of builders like Ryland and KB Home. Those loans are then insured against default by the Federal Housing Authority.
The rub is that FHA loans allow borrowers to buy a home with as little as 3.5% down. And with the ability in some cases to use the government’s $8,000 tax credit toward down payment, some folks can grab a house for 0% down. Isn’t it loans like that that got us into this mess in the first place?
Now technically the law that would allow you to use that tax credit in advance didn’t pass, but the net effect of a down payment less than $8K would be zero down. [Perhaps more if the credit is raised to $15K as has been proposed.]
Yes home values have less room to fall and these loans don’t have a nasty interest raise rise built into them, but how committed are buyers likely to be if values drop further?
Housing Bust Part II might not be as spectacular as Part I, but is it not likely to delay housing’s recovery?
Yep, yep!
Unless the government can find a way to push interest rates lower than 5% and get closer to 4 or even sub 4%.
The housing market will fall, just at a slower rate since the government has gotten involved.
I would think that the answer would lie in the historical data.
These loans aren’t new with the exception of the tax credit.
twist is very good at finding data, maybe she can shed some light on what the historical data shows for defaults on FHA loans.
That data might shed some light on this conversation.
rdotson310 had a pretty good post response to the story on the linked thread.
Since they are government backed loans I think we the taxpayer should be able to demand full recourse if they default on the loan.