FHA Loans – ‘to the Rescue’ or ‘to be Rescued’

[d.wolowitz]

Some analysts pointed out that borrowers with FHA-secured loans now have an average credit score of 690, compared to 630 two years ago. In spite of this, a large number of borrowers are turning up late in their payments or even defaulting. Delinquent FHA loans, those 90 days or more late, jumped 62.1% in the past year to 558,944, or 9.4% of FHA loans, as of the end of January, according to agency statistics. The FHA, however, insists its finances are sound. Its loan portfolio actually performed better than most mortgage products, according to David Stevens, the agency’s commissioner.

FHA loans are still a better option for lower income individuals to purchase a home that they would not otherwise be able to afford. However, if the number of delinquencies increases with such a pace, it is possible that taxpayers will eventually have to bail out the agency. My question here is: How can the Federal Housing Administration work out a suitable strategy to reduce defaults and late payments, and maintain healthy equity/collateral ratios against lent money at the same time?

Original Blog Link: blog.mfgmortgagerates.com/?p=72

[hardikvagadiya@gmail.com]

FHA-insured Loans, originated during the great depression by the Federal Housing Administration and are meant to secure lenders against defaulting borrowers. Whereas, they are also an answer to borrowers who have a less than perfect credit score or are unable to handle a 10% – 20% down payment. All these traits of FHA loans quickly made them popular especially in the 2008-2009 financial climate.