Banks: Credit Restrictions Too High

Banks agree with Realtors that credit is too tight.  In a recent National Association of Realtors podcast, NAR President Ron Phipps discussed his recent meetings with Citibank.  Folks who should be able to get mortgages aren’t getting mortgages…the pendulum has swung too far. 

Things will loosen up again–but no one is sure how soon.

FHA reserves low

FHA capital reserves have fallen to ½ %, short of the 2 % minimum required by congress. In part this is due to FHA insured loans gaining in popularity, and in part it’s due to a higher default rate. FHA backed loans are one of the few ways of getting a home mortgage with less than 20% down payment.

So, what’ll happen? Most likely, at least in my opinion, will be an injection of capital from the Treasury. Alternatively, the minimum down payment may be raised from 3.5%, although this would chill the fragile housing recovery, and may be less politically tolerable.

I recently sold this house on short-sale, or pre-foreclosure, to buyers who used FHA for financing.

Down Payments as low as 3.5% are available through FHA.

FHA Lender Goes Bust

The third largest FHA lender, Taylor Bean & Whitaker (TBW) went out of business a few weeks ago. They were a big source of FHA loans for mortgage brokers and small banks. Ginnie Mae appears to be tightening standards on FHA loans in general, and clamped down on TBW. The result: it won’t get any easier to get FHA loans.

zi-man-pottery-sepia

Sunny days at TBW are over.

Will the FHA tighten home loan standards?

Perhaps. They’ve already boosted required down payment to 3.5% in the last year, but remain one of the easiest sources of home loan money. An article in yesterday’s WSJ said that current delinquencies on FHA loans were up from last year by about 1/2 to 7.8%.

FHA is required by Congress to maintain cash reserves of at least 2% of the loans it insures. Reserves were 6.4% in 2007, 3% last year, and is expected to be less than the required 2% when those numbers will be published this September 30.

So, what will happen? Maybe increased down payment. Maybe increased oversight and regulation at FHA and FHA loan originators. Maybe another bail out. But, probably not anything that will help people get loans.

Below is a house I recently sold that went FHA. Payments were a bit over 1K per month for this cool home. As I’ve said before, now is a great time to buy a house.

FHA-house

Conventional Loans most popular in Lane County

This post will be of most interest to my loan writing friends, a.k.a., mortgage brokers. I looked at the different types of loans used to purchase single family houses in the one-year period of July 2008 to July 2009 in Lane County. Raw data came from rmls.

Of the 3,172 sales, a little over ½ the loans were conventional; cash purchases came next, with one in five purchases last year, FHA insured loans comprised only 18%; and VA was a paltry 4%. Given the popularity of FHA loans these days, I was surprised to find that less than 1 in 5 purchase money loans last year were FHA.

Loan Types for Home Purchases in Lane County Oregon

Loan Types for Home Purchases in Lane County Oregon