NEWS    RECALLS    COMPLAINT FORM    SCAM ALERTS   RESOURCES  
Small Claims Guide   Class Actions   Lemon Laws   FAQ   Newsletters  
Bookmark and Share


Complain about a product or service

Automotive    Education    Employment    Electronics    Family    Finance    Health    Homeowners    Insurance    Pets    Shopping    Travel     Print This     Email This    



NEWS   Latest |  Archives |  Auto |  Cells, etc. |  Computers |  Financial |  Health |  Homeowners |  Parents |  Privacy |  Scams |  Seniors |  Travel

FHA Loan Makes Comeback as Sub-Primes Sink





By Mark Huffman
ConsumerAffairs.com

March 19, 2007

Mortgage Crisis? Act Now to Avoid Foreclosure
Avoiding Foreclosure Takes More Than Hope
---
Renters of Foreclosed Properties in Connecticut Have Rights
Pending Home Sales Rise in December
Homeowners Say Banks Not Following Rules for Loan Modifications
2.8 Million Homes Threatened With Foreclosure in 2009
Long-Term Mortgage Rates Hit Record Lows
Pending Home Sales Rise In October
New Home Sales Rise As Mortgage Rates Fall
Nearly One In Four Homeowners Under Water
Existing Home Sales Jump 10 Percent
Mortgage Delinquencies Still Climbing
Realtors See Signs Of Housing Turnaround
Zillow.com: Fewer 'Underwater' Homeowners In Third Quarter
Distressed Homeowners May Be Able To Rent Their Homes
Should You Walk Away From Your Underwater Mortgage?
Home Prices Rise Four Months In A Row
Consumer Credit Plunges In August
Study: Action By Feds Made Housing Crisis Worse
Mortgage Lender's Collapse Leaves Borrowers Adrift
Bank of America, Wells Fargo Hit With Class Action
Bank Sees Dim Future For Homeowners
Ohio Sues Mortgage Servicer Over Lack Of Modifications
---
More ...

One major consequence of the sub-prime mortgage implosion is the difficulty many consumers with limited or impaired credit will have in obtaining mortgages.

But if suddenly tougher lending standards result in slamming doors at banks and mortgage companies, the venerable Federal Housing Administration loan might look much more inviting.

The long-established FHA loan has always been designed to help the first-time buyer purchase a home of their own. However, it fell out of favor in recent years as its natural constituency was attracted to the exotic mortgages offered by sub-prime lenders.

As a result, many consumers ended up with loans -- and houses -- they really couldn’t afford.

At the urging of some in Congress, the U.S. Department of Housing and Urban Development is looking at modernizing the FHA loan to give consumers, who in the past would have obtained sub-prime mortgages, a better alternative.

Assistant Secretary for Housing Brian Montgomery urged a Senate Appropriations Subcommittee last week to pass legislation that enhances the FHA's government-insured mortgage products and "provides lower-income families safe, secure homeownership opportunities."

"Many first-time and minority homebuyers face significant challenges when trying to purchase a home. In recent years, such difficulties have resulted in many of these individuals assuming risky, adjustable-rate, sub-prime loans. The impact on African American and Latino borrowers has been particularly profound," Montgomery said.

According to 2004 HMDA (Home Mortgage Disclosure Act) Data, 40 percent of African-Americans and 23 percent of Hispanics pay an interest rate three percent higher than the market rate. The Center for Responsible Lending reports that 51 percent of refinancing transitions in African American neighborhoods are sub-prime loans.

"There needs to be a mortgage alternative which will qualify a wide swath of borrowers and simultaneously provide them with the loan options they require. Everyone should have access to a safe, affordable mortgage product; and this should not change just because that person is a first-time homebuyer, a minority homebuyer, or a homebuyer with troubled credit history," Montgomery added.

FHA was created in 1934 to stimulate the housing market during the Depression. Over its long history it has financed more than 34 million homes. But as lending practices have evolved and modernized, critics have charged the FHA has been slow to adapt, and reforms are necessary to adapt the program to today's marketplace.

Specifically, critics would like to see changes that reflect the recent escalation of home values, allowing home-buyers to make smaller down payments and take out larger loans, as long as they can qualify. Currently there are limits on the sizes of FHA mortgages.

Rep. Barney Frank (D-MA) would like to see additional changes. He introduced legislation in 2006 to allow FHA greater leeway in financing manufactured homes, which are more affordable than conventionally build houses.

These proposed changes, however, buck a significant trend. Banking regulators are busy tightening rules on sub-prime lending, virtually doing away with nothing-down, interest only loans that were in vogue as little as a year ago. Currently, FHA rules require the homeowner to put at least three percent down, and loans are limited to roughly $363,000.

But unlike sub-prime loans, FHA mortgages are not traded on Wall Street and subject to market panic attacks.

Instead, they are backed by U.S. Government bonds. But because they are administered by a government agency, they can be slow, cumbersome and bureaucratic. As a result, FHA loans fell out of favor with many realtors, who heavily influence where their clients turn for financing.

While not falling into the same sinkhole as the sub-prime lending industry, FHA is trying to become more flexible and consumer friendly. Its proposed modernization plan would create a new, risk-based insurance premium structure that would match the premium amount with the credit profile of the borrower. It would replace the current structure, in which there is standard premium amount for all borrowers.

As a result of excesses within the sub-prime mortgage industry, it will likely be harder for consumers of modest means to purchase a home. But the FHA says, with some retooling, it could provide a safe alternative for many of these would-be homebuyers.



Report Your Experience
If you've had a bad experience -- or a good one -- with a consumer product or service, we'd like to hear about it. All complaints are reviewed by class action attorneys and are considered for publication on our site. Knowledge is power! Help spread the word. File your consumer report now.

FREE CONSUMER NEWSLETTERS

The Daily Consumer
Afternoons M-F

Sign up now!


Consumer News & Alerts
Every Sunday

Sign up now!

Follow us on Twitter.





CONSUMER NEWS

SAFETY RECALLS

Back to the top |

Advertisement


Custom Search
AUTOMOTIVE
• Dealers
• Manufacturers
• Service
• Extended Warranties
• Lemon Laws
• Recalls
• Tires
• Transporters

FAMILY
• Aging
• Children, Parenting
• Recalls
• Dating
• Education
• Entertainment
• Pets
• Weddings
FINANCE
• Annuities
• Banks
• Credit Cards
• Debt Collection
• Debt Counseling
• Insurance
• Investing
• Loans
• Mortgages
• Payday Loans
• Student Loans
• Tax Prep

HEALTH
• Doctors
• Drugs, Pharmacies
• Health Clubs
• Hearing Care
• Hospitals
• Nursing Homes
• Nutrition, Diets
• Vision Care
• Weight Loss
HOUSE & HOME
• Appliances
• Cookware
• Furniture
• Home Improvements
• Lawn & Garden
• Movers
• Pools & Spas
• Realtors, Rental Agents
• Recalls
• Utilities

ELECTRONICS
• Cable TV/DBS
• Cameras
• Cell Phones
• Computers
• Home Electronics
• Internet Access
• Local Phone Service
• Long Distance
• VoIP
SHOPPING
• In-Home
• Online
• Retail Stores
• Sporting Goods
• Supermarkets
• Telemarketers

TRAVEL
• Airlines
• Bus Lines
• Car Rental
• Cruises
• Hotels
• Travel Agents
• Trains

RESOURCES
• Class Actions
• Complaint Form
• Small Claims Guide
• Lemon Laws
CONSUMER NEWS
• Latest News
• Automotive
• Telecom
• Financial
• Health
• Homeowners
• Scams
• Seniors
• Travel
• More ...

RECALLS
• Automotive
• Children's Products
• Drugs
• Food
• Household Products
• Sporting Goods

ABOUT US
• FAQ
• Privacy Policy
• Advertise With Us
• Newsroom
• Syndication
• Terms of Use

Terms of Use Your use of this site constitutes acceptance of the Terms of Use

Advertisements on this site are placed and controlled by outside advertising networks. ConsumerAffairs.com does not evaluate or endorse the products and services advertised. See the FAQ for more information.

Company Response Welcome If complaints about your company appear on our site, we welcome your response. Please see the Response Form for more information.

For more information, see the FAQ and privacy policy. The information on this Web site is general in nature and is not intended as a substitute for competent legal advice.  ConsumerAffairs.com Inc. makes no representation as to the accuracy of the information herein provided and assumes no liability for any damages or loss arising from the use thereof. 

Copyright © 2010 ConsumerAffairs.com Inc.  All Rights Reserved.    The contents of this site may not be republished, reprinted, rewritten or recirculated without written permission.