CA Mortgage News- FHA Defaults on the Rise What Does This Mean For California?
By: Kathryn Davis
Recently reported in the Washington Post was an article on FHA mortgage defaults rising and possibly foreshadowing a crush of foreclosures.
FHA loan defaults rose almost 3% from last year to present a recent report shows. These default rates have been steadily climbing over 2009 and its eating info their cash funds that could be put to better use. The majority of these new FHA defaults are mortgages made in 2007 and 2008. If the FHA continues to use their cash reserves to cover the defaulted mortgages the next step is reported government intervention by using taxpayer money to cover the losses.
What does this mean for California? Well there was a flood of new buyers qualifying for FHA loans in 2007 and 2008, here in the Inland Empire. My loan officer colleagues had to upgrade their systems with new FHA loan forms and take FHA refresher classes to keep up with the demand as FHA loans were uncommon before 2007. In our area of Riverside, Corona, San Bernardino and Chino we will see another wave of these defaulted loans hit the real estate market as foreclosures and short sales unless borrowers can get a loan modification.
It is important to note that the FHA does not make loans; they insure the lenders that make these loans against losses. Many potential buyers in 2007 and 2008 who had less than perfect credit were able to get an FHA backed loan and thus into a home mortgage.
In addition to this was a now non-existent program that allowed seller financing which helped buyers who didn’t have enough money to cover down payments of a home. What this did was help financially unsound buyers to get into a home with no stake in the claim so to speak. So when things get tough it’s easier for the new owner to walk away as they aren’t loosing a $20,000 down payment out of their pocket.
The FHA increased its borrowers standards in 2009 to higher credit scores, no seller financing and full financial document support so as to no repeat its past mistakes.