The Federal Housing Administration is in the red. This much we know from the last month of news coverage bemoaning its underwater state. There are a slew of changes being enacted within the mortgage industry in an attempt to remedy what was supposed to be a remedy itself. FHA is broke, but is it broken?
The Federal Housing Administration is the largest insurer or low down-payment mortgages. It serves this purpose in an attempt to shepherd the still recovering mortgage industry out of a financial crisis that reached across two presidencies, across various markets, and the globe which yielded a manifest destiny of anxiety and debt that Luis and Clark could never hope to traverse, even with a GPS and a helicopter.
The financial crisis was difficult for millions, and many of the programs that FHA put into place were designed to cut costs to families in order to keep them in their homes and to keep faulty lending practices from digging a hole so deep that we would never climb out way out of it. But what happens when we think that we’ve begun to see some significant ascent out of rock bottom? Why, we decide that it’s time to start paying again; that’s what.
Chairman Murray, of the Congressional Budget Office, said in a hearing last week, “The $2.4 trillion in deficit reduction we enacted over the last two years has moved us closer to stabilizing the debt and responsibly scaling back the deficit.” The CBO said that had FHA not stepped up during the financial crisis, home values would have dropped even further. A sign of the shift in perception and apparent lack of identification with financial vulnerability comes in the FHA’s latest decision to raise premiums by 10 basis points, which amounts to +0.1% of the greater part of new mortgages which it insures. A few other smaller changes are in store as well, such as increasing the minimum down payment on larger loans from 3.5% to 5% along with raising premiums on said loans. Their most popular HECM product proved to be more of a drain than expected and is being discontinued. This should remedy a rather large imbalance, ensuring more of an upward tick for the agency. All of these things are designed to breathe new life into the agency which has been the backbone of the financial crisis recovery.
The goal of these and other changes is to reduce the burden from risky loans and to recover from an incredible amount of money it lost on various ventures over the last few years. Increases like these are always difficult for mortgage borrowers, but the thing to note from those of us in this industry who are watching developments occur is what they say about the state of the industry itself; that borrowers, the public, are now able to shoulder more of the financial burden, and ideally that Americans are now in a stronger place to be able to do so. FHA has been an instrumental agency in stabilizing our economy, though not without its bumps along the road. The housing industry is stronger now than it has been in the last several years. FHA has done its job and had its effect, and what comes next is largely going to be up to us. With greater strength comes greater individual responsibility, but the question remains, “Will today’s Americans embrace this financial responsibility, or shirk it?”
What do you think? Leave us a comment and let us know!