Blog

FHA: No Money Down. No Money Left. Paving The Way for Housing’s Double Dip.

The Federal Housing Administration’s long-awaited audit reveals that in the fiscal year that ended Sept. 30 its capital reserve ratio had fallen to 0.53% — well below the congressionally mandated minimum of 2%.

Currently FHA borrowers pay an up-front premium of 1.75% of the mortgage amount for home-purchase loans and 1.5% for refinancings. They also pay a monthly premium of 0.5% to 0.55% a year, depending on how much equity the borrower has in the home.

The FHA’s minimum down payment is 3.5%; Rep. Scott Garrett, R-NJ, has introduced legislation that would increase it to 5%. With the extension and expansion of the $8,000 homebuyer credit, homebuyers can buy on borrowed FHA money with little to no money down.

This generosity is not reserved for small home-buyers in lower-income areas. Today’s NYT reports that a “recently broke” 20-something and his two friends purchased a two-unit apartment building in San Francisco for nearly a million dollars with next to no money down. The Economic Stimulus Act of 2008 has temporarily doubled the maximum loan the FHA. insured, to $729,750. A two-unit property like the one bought by the 20-something and his friends can be insured for up to $934,200.

HUD’s inspector general sounded the warning alarm of more and higher losses from defaults: “If one of these higher-limit loans fail, that’s equivalent to two or three cheaper loans. You have to ask yourself, was the FHA ever intended to address these markets?”

Representative Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that he planned to introduce legislation next year raising the maximum F.H.A. loan by $100,000, to $839,750. His bill would make the new limits permanent.

The WSJ just sounded the double-dip alarm on housing — which Multifamily Investor has been ringing for months: 3.4% of U.S. households — or about 1.9 million homeowners — are 120 days or more overdue on their payments, but not yet in foreclosure. That is up from 1.5% a year earlier.

The number of homes listed for sale was 3.63 million in September, down 15% from a year earlier, according to the National Association of Realtors. That is enough to last about eight months at the current rate of sales. Anything above about six months is considered a buyer’s market, in which prices may come under downward pressure.

But those numbers don’t reflect the millions of homes expected to go through foreclosure over the next few years, adding to supply. Amherst Securities Group in September estimated seven million homes are headed for foreclosure in the next few years — more than a year’s home sales at the current rate.

That report was first exclusively broadcast here.

These short term government efforts to boost the economy are akin to heating a house by ripping out floorboards, and setting them on fire in the middle of the living room. In other words, the house is going to come crashing down.

This will create another wave of overleveraged homes, whose nominal owners return to the banks. This, in turn, will further compress multifamily values since it will be cheaper to rent one of these homes than an apartment unit.

Related posts:

1. How Many U.S. Housing Units Received Foreclosure Notices in 2009? A foreclosure filing includes default notices, scheduled foreclosure auctions...
2. We’ll Help You Put No Money Down…Until We Have No Money Left The Federal Housing Administration abruptly delayed the release of...
3. Shadow Housing Inventory and the Multifamily Market A growing supply of shadow housing inventory, housing stock...
4. City of New York Facilitates Multifamily Housing A $20 million pilot program designed to turn unsold...
5. Bipartisan Effort in Congress to Fix Housing Crisis by Herding All Hemophiliacs Into Giant Acupunture Clinic Oh, yes, there will be blood. Democrats and Republicans...

Related posts brought to you by Yet Another Related Posts Plugin.