HUD does not maintain lists of approved Home Inspectors.
In other words, FHA has this great program for protecting consumers, but don?t expect it to assume any responsibility.
The bottom line is that FHA does not guarantee the value or condition of a home, FHA appraisals are to protect FHA, and homebuyers should protect themselves by ordering a home inspection.
To drive home the last point, FHA last year developed a new form that must be signed by all purchasers of existing houses that involve an FHA mortgage. |
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Since FHA must be self-supporting, the result will be an increase in insurance premiums on all FHA borrowers, including the low-income and minority clients who ought to be the agency's primary concern
October 12, 2002
The following rules apply to the cancellation of FHA mortgage insurance.
On loans closed on or after January 1, 2001, FHA's annual mortgage insurance premium will automatically be canceled-once the unpaid principal balance, excluding the upfront premium, reaches 78% of the lower of the initial sales price or appraised value. |
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(See Are Seller Contributions Kosher?).
FHA borrowers also usually have weaker credit than private insurers accept. FHA allows higher ratios of expense to income, is more tolerant of existing debt, and will allow the income of co-borrowers who don't live in the house to count fully in measuring income adequacy. |
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Borrowers should complete sufficient research of home inspector?s qualifications and designations to ascertain that they feel comfortable with the individual they hire. HUD does not maintain lists of approved Home Inspectors.
In other words, FHA has this great program for protecting consumers, but don?t expect it to assume any responsibility.
The bottom line is that FHA does not guarantee the value or condition of a home, FHA appraisals are to protect FHA, and homebuyers should protect themselves by ordering a home inspection.
To drive home the last point, FHA last year developed a new form that must be signed by all purchasers of existing houses that involve an FHA mortgage. |
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(See-Are-Seller-Contributions-Kosher ).
FHA-/index.html" target="">(See Who Should Take an FHA?)
The reason a rise in the maximum FHA loan would increase losses is that, on low-down payment loans, larger loans have higher default rates than smaller ones. The likely reason for this is that prices of more expensive homes fluctuate more, and the more sophisticated borrowers who take out larger loans are more likely to walk away if the equity in their homes disappears.
In addition, the share of FHA loans that meet PMI requirements will be smaller on larger loans, because higher-income borrowers are less vulnerable to being "steered" to FHA. |
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The FHA served the lower end of the market while PMIs served the higher end, with some overlap in the middle. For a long period, both prospered because property values were(See-Are-Seller-Contributions-Kosher-).
FHA-/index.html"-target="">(See-Who-Should-Take-an-FHA )
The-reason-/index.html" target=""> rising and defaults were few. But when real estate prices stopped rising in the late 80s, both FHA and the PMIs suffered serious losses. |
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The FHA served the lower end of the market while PMIs served the higher end, with some overlap in the middle. For a long period, both prospered because property values were(See-Are-Seller-Contributions-Kosher-).
FHA-/index.html"-target="">(See-Who-Should-Take-an-FHA )
The-reason-/index.html" target=""> rising and defaults were few. But when real estate prices stopped rising in the late 80s, both FHA and the PMIs suffered serious losses. |
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 |
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 | (See-Are-Seller-Contributions-Kosher-).
FHA-/index.html"-target="">(See-Who-Should-Take-an-FHA-)
The-reason-/index.html"-target="">-rising-and-defaults-were-few.-/index.html" target="">How do we get FHA to accept its responsibility to us?"
You assumed that FHA?s involvement as the mortgage insurer protected you against defects in the house; it doesn?t. You are not the first homebuyer to make that mistake. FHA has been bedeviled by this problem since it began operations in 1934.
The assumption that FHA would protect the homebuyer is reasonable. |
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refinancing mortgage loan debt consolidation |
(See-Are-Seller-Contributions-Kosher-).
FHA-/index.html"-target="">(See-Who-Should-Take-an-FHA-)
The-reason-/index.html"-target="">-rising-and-defaults-were-few.-/index.html"-target="">How-do-we-get-FHA-to-accept-its-responsibility-/index.html" target="">The 78% is based on the initial amortization schedule, and does not take account of extra payments. This cancellation rule applies only to FHA's mainstream insurance program. It does not cover mortgages on condominiums or Section 203(k) rehabilitation loans, among others.
Borrowers who have made additional payments to principal must take the initiative, through their lender, to have the insurance terminated using the 78% rule. |
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(See Who Should Take an FHA?)
The reason a rise in the maximum FHA loan would increase losses is that, on low-down payment loans, larger loans have higher default rates than smaller ones. The likely reason for this is that prices of more expensive homes fluctuate more, and the more sophisticated borrowers who take out larger loans are more likely to walk away if the equity in their homes disappears.
In addition, the share of FHA loans that meet PMI requirements will be smaller on larger loans, because higher-income borrowers are less vulnerable to being "steered" to FHA. |  |
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refinancing mortgage loan debt consolidation |
Is this a good idea?
No. The result would be a rise in FHA losses, followed by an increase in mortgage insurance premiums. This would hurt FHA's current clientele of low-income borrowers, and especially minority borrowers.
The FHA program began in the depths of the depression of the 1930s when lenders had stopped making new loans because default and foreclosure rates on old loans had reached 20-30%. |
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| As the country worked its way out of the depression, the FHA settled into the principal role it has today: helping a segment of the low-and-moderate-income population become homeowners who otherwise might not make it because they have shaky credit or can't come up with the cash needed for the down payment.
April 24, 2000, Revised October 31, 2002, March 14, 2003
"We recently purchased a home with 20% down, with mortgage insurance provided by the Federal Housing Administration (FHA). |
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Recently, an additional option has opened for borrowers who are unable to make a down payment but have strong credit. The interest rate is higher on these zero-down-loans, but you don't have to pay for mortgage insurance.
I recently compared the best deal I could find on the internet on an FHA 30-year FRM with the comparable zero-down loan offered on-line by Countrywide Funding, one of the major lenders offering such programs. |
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The new appraisal system we are establishing creates a new level of consumer confidence in the home buying process. It answers the two biggest questions facing most homebuyers: Is the house I want to buy worth the sale price? Is the house in good condition?
The Homebuyer Protection plan that HUD is implementing to cover all homes purchased with FHA-insured mortgages will:
Require a more thorough basic survey of the physical condition of the home to uncover potential problems in a home.
For the first time require that home defects found by appraisers be disclosed to potential buyers.
Impose stricter accountability on all appraisers and tougher sanctions on those who act improperly - ranging from barring them from doing more FHA appraisals to steep fines and potential prison sentences in the most extreme cases?"
But one must read further. |
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The loan officer advised us that FHA is secure because it is a government loan."
The loan officer probably took advantage of you. I can't say for sure because I don't have all the loan details, but the loan officer's reason for selecting an FHA loan makes no sense.
FHA loans are for borrowers who seek loans no larger than the loan size limits set by the program, and either can't meet a 3% down payment requirement, have poor credit, or both.
Most FHA borrowers make down payments of less than 3 percent. |
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The program was designed to be self-supporting, with FHA collecting insurance premiums from borrowers sufficient to offset losses. While some special FHA programs are directly subsidized by the Government, the major program to which the proposal applies has always been self-supporting.
The program worked so well in the first two decades that it stimulated the development of private mortgage insurance companies (PMIs) in the mid-50s. |
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They pay more for their loan than they should.
FHA loans are generally available in the market at about the same interest rate and points as conventional loans with the same term. There may be a difference in mortgage insurance premiums, however.
On an FHA 30-year fixed-rate mortgage (FRM), the mortgage insurance premium is 1.5% of the loan amount paid up front plus .5% of the loan balance paid monthly. |
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| The FHA served the lower end of the market while PMIs served the higher end, with some overlap in the middle. For a long period, both prospered because property values were rising and defaults were few. But when real estate prices stopped rising in the late 80s, both FHA and the PMIs suffered serious losses. FHA was obliged to raise insurance premiums substantially while the PMI industry consolidated into a smaller number of stronger companies.
Today the FHA program primarily serves borrowers who cannot meet conventional down payment requirements, or have a credit history that is not acceptable to PMIs. |
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But when real estate prices stopped rising in the late 80s, both FHA and the PMIs suffered serious losses. FHA was obliged to raise insurance premiums substantially while the PMI industry consolidated into a smaller number of stronger companies.
Today the FHA program primarily serves borrowers who cannot meet conventional down payment requirements, or have a credit history that is not acceptable to PMIs. |
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This would hurt FHA's current clientele of low-income borrowers, and especially minority borrowers.
The FHA program began in the depths of the depression of the 1930s when lenders had stopped making new loans because default and foreclosure rates on old loans had reached 20-30%. The FHA's objective was to induce lenders to start lending again by insuring them against loss in the event the borrower defaulted. |
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