FHA Loan Guidelines Affected by FHA Reserves
You would think that the housing sector rebounding would be good news for FHA loan programs, but think again. Yesterday HUD reported that the FHA reserve fund is dangerously low and today Zillow is reported that home prices seem to be stabilizing. “The percent of American single-family homes with home mortgages in negative equity fell to 21% in the third quarter, down from 23% in the second, as home values stabilized in the short term and more underwater homeowners lost their homes to foreclosure, according to the third quarter Zillow Real Estate Market Reports. “Year-over-year home values in the United States declined for the 11th consecutive quarter, falling 6.9 percent to a Zillow Home Value Index of $190,400,” says the company. “However, the rate of year-over-year decline shrank for the third quarter in a row, meaning home values did not decline as dramatically year-over-year in the third quarter as they did in the second or the first.”
In addition to Zillow, the S&P/Case-Shiller report reaches the same conclusion: Data through August 2009, says S&P/Case-Shiller, shows that “approximately seven months of improved readings in these statistics, beginning in early 2009.” “While many of the markets remain down versus this time last year, the relative rate of decline has shown some real improvement,” says David M. Blitzer, Chairman of the Index Committee at Standard & Poor’s. “California, in particular, has seen some real positive prints in recent months. We see this general trend whether you look at the as-reported data or the seasonally adjusted figures.”
For FHA mortgage products and FHA lenders the ideal scenario would be for FHA loan defaults to decrease. FHA loan guidelines will tighten significantly if the FHA loan defaults continue. For the FHA, more equity translates into lower claims against its reserves. Foreclosure is not actually a problem for insurance programs if the value of the home is greater than the outstanding mortgage lien and the default costs. Thus, for the FHA, the more equity the better. Read the original article.
