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Thread: FHA Loans and PMI

  1. #1
    Senior Member kjrice's Avatar
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    Default FHA Loans and PMI

    Big changes coming in June...less than 10% down and your have to pay PMI for life of the loan. There are other increases and term changes too. Folks better get educated on them.
    A lot of people are afraid of heights. Not me, I'm afraid of widths.

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    Senior Member Gerry Clinchy's Avatar
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    This will not help the housing market. 10% down will be the highest down $ for FHA in a l-o-n-g time. I'm not saying that is all a bad thing, even though I am a Realtor®.

    When conventional lending pulled in its horns, almost all loans under the FHA cap (in my area) began going as FHA loans, with 3.5% down. So, changing to 10% will make a BIG difference around here. However, it will stabilize the housing market.

    The question will be whether the politicians will catch the devil from their consituents on this, as the cost of living makes it harder and harder to save up that 10%.
    G.Clinchy@gmail.com
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    Senior Member luvmylabs23139's Avatar
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    I'd be happy if we went back to 20% down and got the gov't out of it all.
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    Senior Member sick lids's Avatar
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    Quote Originally Posted by luvmylabs23139 View Post
    I'd be happy if we went back to 20% down and got the gov't out of it all.
    Work hard and save, NOW THAT WOULD BE UNAMERICAN

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    Senior Member Gerry Clinchy's Avatar
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    I think that the problem is that back in time, wages were lower, but so was the price of necessities like food and gas. Now, the wages are higher (but lower than they were 3 or 4 years ago in "real" dollars), and the cost of necessities are higher. Thus, it will be just as hard to save that 10% as it used to be save the 20%.

    While it may have been dumb to let people buy houses on 2.5% and 3.5% down, it grew the housing industry, which made for more jobs; and some of those jobs had decent pay. This higher down payment will slow down sales of both new construction and re-sales.

    I do not have a problem with financial responsibility being returned to the market, but if the housing industry takes a "hit" with such a dramatic increase in down payment (conventional lenders have already gotten more strict), then it should follow that there will be higher unemployment (from more lost jobs in housing). Unemployment will also be impacted in the support industries of the suppliers; everything from furnaces, heat pumps, lumber, roofing supplies, plumbing supplies, etc. Those workers will also get some effect on employment. With those people out of work, and loss of those workers' disposable income will affect many more sectors of the economy as well.

    I am NOT saying that we should artificially support the housing industry, but we should be prepared for the fallout from this move.

    It will also mean that if these changes take place in June ... right after the "spring market" in real estate sales ... the bottom will fall out by fall. 4th quarter 2013 housing figures should then reflect the change. Unless there is some back-pedaling on this, there could be a lot of hurt going around as we head into the 2014 mid-term elections.

    The winners? The banks have a lot of foreclosures that they have not "released" into the marketplace. If they start releasing them, investors should be able to pick up some good deals; and, eventually, make some bucks when they re-sell them. Probably a good example of "the rich get richer". But this is not the "fault" of the "rich", it is the fault of govt meddling in housing to allow people to buy homes they could not afford.

    In the interim, the investors can use the properties they purchase as rental properties. With many people unable to buy, the demand for rentals should remain strong. The rental market has remained strong through the rest of the housing debacle. Landlords, however, were taking greater risks since the tenants' credit reports looked pretty bad when they reflected foreclosures and/or short sales on their home.
    G.Clinchy@gmail.com
    "Know in your heart that all things are possible. We couldn't conceive of a miracle if none ever happened." -Libby Fudim

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    Senior Member achiro's Avatar
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    Low down payments weren't the issue.
    "The thing I admire about the rat tail is that it takes commitment. It's not like one day you just decide you want one, you have to grow out that bad boy and you have to repeatedly convince the hairdresser to trust you because it's a great idea."

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    Senior Member Gerry Clinchy's Avatar
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    Quote Originally Posted by achiro View Post
    Low down payments weren't the issue.
    I might disagree with this ... Here in PA, there are also closing costs that include 2% transfer tax. Customarily this is split 50/50 between buyer and seller. There are also tax escrows, title insurance, and some other lesser fees. These closing costs, over and above the down payment, usually amounted to around 5-6% of the cost of the home. FHA allowed the seller to pick up as much as 6% of these additional costs. So, one could purchase a $100,000 home for an outlay of $2500. Perhaps another $500 for pre-purchase inspections. FHA did not require any "reserves" for owner-occupants, i.e. money still in the bank to cushion an "emergency".

    While down payments, alone, were not the issue, they certainly did play a role in the overall stupidity of home purchasing during the housing bubble.

    Outside of the FHA program, part of the housing debacle was the 100% and 103% mortgage loans. With the 103% loans, the seller could also pay the remaining 3% of the closing costs. Very easy to let a home go to foreclosure when one has no skin in the game.

    Realtors® were not immune from the virus. Not long ago I noticed a short sale for a $600K home that was owned by a local agent who had paid around $800K for the home during the height of the bubble locally.
    G.Clinchy@gmail.com
    "Know in your heart that all things are possible. We couldn't conceive of a miracle if none ever happened." -Libby Fudim

    ​I don't use the PM feature, so just email me direct at the address shown above.

  8. #8
    Senior Member achiro's Avatar
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    Quote Originally Posted by Gerry Clinchy View Post
    I might disagree with this ... Here in PA, there are also closing costs that include 2% transfer tax. Customarily this is split 50/50 between buyer and seller. There are also tax escrows, title insurance, and some other lesser fees. These closing costs, over and above the down payment, usually amounted to around 5-6% of the cost of the home. FHA allowed the seller to pick up as much as 6% of these additional costs. So, one could purchase a $100,000 home for an outlay of $2500. Perhaps another $500 for pre-purchase inspections. FHA did not require any "reserves" for owner-occupants, i.e. money still in the bank to cushion an "emergency".

    While down payments, alone, were not the issue, they certainly did play a role in the overall stupidity of home purchasing during the housing bubble.

    Outside of the FHA program, part of the housing debacle was the 100% and 103% mortgage loans. With the 103% loans, the seller could also pay the remaining 3% of the closing costs. Very easy to let a home go to foreclosure when one has no skin in the game.

    Realtors® were not immune from the virus. Not long ago I noticed a short sale for a $600K home that was owned by a local agent who had paid around $800K for the home during the height of the bubble locally.
    But ultimately it was about the monthly payment being higher than the buyer could afford, especially on ARM loans. Sure, putting more down does lower the payments some but if people had a house payment they could afford the down wouldn't matter and foreclosure rates would be very low.
    "The thing I admire about the rat tail is that it takes commitment. It's not like one day you just decide you want one, you have to grow out that bad boy and you have to repeatedly convince the hairdresser to trust you because it's a great idea."

  9. #9
    Senior Member Gerry Clinchy's Avatar
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    Quote Originally Posted by achiro View Post
    But ultimately it was about the monthly payment being higher than the buyer could afford, especially on ARM loans. Sure, putting more down does lower the payments some but if people had a house payment they could afford the down wouldn't matter and foreclosure rates would be very low.
    However ... if higher down payments were required, it would have been more difficult for these buyers to get into these mortgages.

    We can certainly also fault the types of mortgages that were used.

    Responsible Realtors® and loan officers had a hard time of it. People were in a buying frenzy, and all they wanted was someone who told them that they could buy the house they wanted to buy.

    We should not forget that banks were compelled to make these loans due to govt mandates.
    G.Clinchy@gmail.com
    "Know in your heart that all things are possible. We couldn't conceive of a miracle if none ever happened." -Libby Fudim

    ​I don't use the PM feature, so just email me direct at the address shown above.

  10. #10
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    Quote Originally Posted by achiro View Post
    Low down payments weren't the issue.
    They were a BIG part of the issue. Having 20% of a large purchase price sort of pre-qualifies one as being a more responsible fiscally sound person. Additionally it requires them to have a lot of skin in the game; which will make them more likely to not overextend themselves or walk away with no loss

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