We should thank Uncle Sam, including its Federal Housing Administration insurance program, for the surge in recorded sales in September, deals that likely entered into escrow in July or August.
DataQuick previously said sales of 2,667 houses and condos were recorded in September, up 62% from a year ago — the biggest year-over-year gain in DataQuick’s 20-year history.
But how were those deals financed?
| Month | OC-LA | U.S. |
|---|---|---|
| August ‘08 | 18.5% | 28.6% |
| July ‘08 | 18.8% | 27.2% |
| June ‘08 | 14.4% | 23.2% |
| August ‘07 | 2.3% | 9.5% |
Brokers say many buyers are taking advantage of FHA, which allows for down payments as low as 3% of the purchase price. That 3% can be a gift from a relative.
First American LoanPeformance ran some numbers for me for Orange County-Los Angeles (they didn’t have just O.C.), estimating that 18.5% of buyers used FHA in August (the most recent data available when I called). That was down slightly from 18.8% in July, but up big from 2.3% in August ‘07.
Nationally, FHA was even more popular with 28.6% of August buyers using the program, up from 27.2% in July and 9.5% in August ‘07.
The Census Bureau recently released FHA data for new home sales. That showed buyers used FHA financing 17% of the time in Q3, up from 15% in Q2 and 4% in Q3 2007.
One bit of rain on the FHA parade was the end of Downpayment Assistance Programs on Oct. 1. DAPs, as they are known, allowed the seller to provide the buyer with the downpayment.
Back in June, Federal Housing Administration commissioner Brian Montgomery criticized DAP, reported the mortgage news site HousingWire. Here’s a clip from that story:
“Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments,” Montgomery said at a National Press Club event.
Such loans are currently one-third of the government agency’s portfolio, he added, and led the agency to book an additional $4.6 billion in unanticipated long-term losses in an annual re-estimate.
“No insurance company can sustain that amount of additional costs year after year and still survive,” he argued. “Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate.”
For anyone who doesn’t know the basics on FHA, it is an insurance program protecting lenders and note-holders against loss in case the borrower doesn’t pay. Consumers who get FHA loans pay a premium, which goes into a pool that covers losses on loans.
And as for Uncle Sam’s help boosting the O.C. housing market, let’s not forget the government now owns mortgage giants Fannie Mae and Freddie Mac. I have heard the government is either buying or insuring 90% of the loans made in this country. That may be a little high, but not by much.
And in other mortgage news…
- O.C.’s conforming loan limit drops 14%
- Another risk expert finds a new job
- Confused about mortgages?
- We print money!
- Some foreclosures get multiple bids, others languish
- Schwarzenegger proposes 90-day foreclosure moratorium
- Ditech.com parent may fail
- New York Fed hires risk expert from … Bear Stearns
- Credit crunch eases on Election Day
- Some can’t borrow as much on their plastic
- 1st rise in O.C. distressed homes for sale since July
- Our financial system ripe for more disasters
- Chase-WaMu to help 400,000 avoid foreclosure
- Gov’t actions fail to ease O.C. mortgage rates
the more FHA 3% down payment loans that happen in OC today….. the more foreclosures we will see tomorrow….
Like treating a drug addict with more drugs.
Isn’t FHA only for 1st time buyers?
FHA is not a bad deal. You do get a slightly higher interest rate than a Fannie loan. This is the problem we had in trying to buy a condo: The entire tract must be approved for FHA. Also a 51% owner occupancy rate is required. Many are withdrawn because of litigation issues. Law suits by the HOA against builder. Many condos I see are priced very low for this reason, they are not FHA approved. We are still looking for a place. Next year should be better with prices on single family homes falling further. No need to get FHA approval for SFH. Home must pass the FHA appraisal of course. FHA will go up to 3.5 percent down payment next year.
No Dina,
FHA is not only for 1st time home buyer. Not for greedy investors that want to flip properties however. You can check their website for more information.
http://portal.hud.gov/portal/page?_pageid=73,1&_dad=portal&_schema=PORTAL
FHA loans are available to anyone that can qualify, 1st time buyers included. FHA loans have been around for many years, but have been less popular in years past due to the sub-prime market. Since the fallout of the sub-prime market, FHA has once again become a popular loan product for many borrowers.
Hey mav……..
I beg to differ with your comment. FHA loans are a good thing, especially in a time like this when the economy needs more buyers to purchase the over saturated market. Borrowers must qualify for FHA loans by showing full documentation. This means that the lenders are ensuring these individuals can afford the payment. Also, small down payments are neccesarily a bad thing. The value of your home will go up and down, whether you owe a lot or a little. All of the top financial planners and investors will agree that it is key to leverage your money. If and only if you can afford the payment.
Please submit your questions or comments at http://www.KyleGeorgeGroup.com
Correction:
Also, small down payments are NOT neccesarily a bad thing.
Let’s just consider the fact that many of these properties might be reaching a price point at which the mortgage is close or equal to the amount of rent payed per month. Since BEARS are constantly slamming real estate just to do so at this point, there is a time to buy for people… and that might just be now. The market is cyclical and might go down even more…. and I am sure there are some wishing it to drop to 100,000 for a 4 bedroom house, but this just isn’t going to happen. People posting only negative stats fuel the trend downward but just as it started to drop it will come arround, and maybe if you wait too long, you might get a house or condo at the same price or a little lower but with a much higher interest rate… which will certainly go up on months/years to come… therefore even if you get a little better deal on the front end… the loan might wash out the savings. Not to mention you have nothing to write your income down with as a renter. If you are qualified to borrow, find a property to buy that makes sense to your income, don’t sit on the sidelines until it is too late. And no I am not a realtor nor do I think they earn the commissions they are paid in most cases, just tired of always seeing the same old haters on this blog trying to convince people to wait ubtil properties are lower than they will ever get to.
No Dina it is not. Today it’s FHA. Yesterday it was sub-prime…..almost the same. Those 3% down loans that were made over the last 12 months are now 15% over the value of the home…..New foreclosures just waiting to happen. Mav and Greg, you two are absolutely right.
How can you say FHA is the same as Sub-Prime. That is completely unfactual. You have to show paystubs, tax-returns, etc. to qualify for an FHA loan. The Sub-Prime market was selling loans to people with no jobs and no money in the bank!
Just to rieterate……..
Whether you put 3% down, or 60% down, the market is still going to fluctuate. The notion that putting more money down will ensure that your home is not under water is ridiculous.
The truth of the matter is, the more money that you put down….the more money you lose when the homes value drops. Lets ask ourselves. If you had bought a house 3 years ago at the height of the market would you have rather made a large downpayment and lost it all, or put a small downpayment and only lose a little? Person A and person B both have a home that is worth less than what they owe, but person B probably has 100k+ in his bank account becasue he didn’t trap the equity in the walls of his home.
Please submit your questions or comments to http://www.KyleGeorgeGroup.com
Dear George Group…..Did you forget about FHA streamline refinances of a couple of years ago? No qualifing, just re-writing the loans. The comparing FHA to Sub-Prime is with the down payment. People walk if their homes are upside down dramatically. Not all Sub-Prime borrowers were distress scenarios, they just walked because their was no value left and they had invested very little…..like the 3% FHA.
Bill-1A, you raise a good point. People are walking away from their homes becasue of the fact that they never held a significant equity position in the home. This is a serious issue, but one we have seen in years past as well (80’s). The consumer needs to properly educated…….Home prices will rebound, but many homeowners are realizing that their home value has declined so mich that even a huge gain in values would not position them at a leveling point. It is a tought situation, however without available financing there is no one to purchase the many homes on the market.
RE: FHA Streamline Refinances
Lets say you have an FHA loan and you want to do a “stremaline refi”. You cannot take any cashout from the equity, therefore it is merely a rate and term refi. Thus people will only do a streamline to reduce their interest rate, effectively lowering their mo/ payment. What if that person lost his job, or doesn’t make as much money? Wouldn’t they be better served by a cheaper payment. They are more likellyt to make the payment. They would be in more trouble if they couldn’t take advantage of the streamline. In a sense, its preventing another foreclosure.
Questions or comments @ http://www.KyleGeorgeGroup.com
Bill-1a…your perspective is skeed. Just because a home’s value may have fallen below the mortgage balance on it, does not mean it is a forclosure waiting to happen. If one has been pre-qualified in today’s mortgage climate to be able to afford the payment, the value of the home is moot. You are still thinking into the past few years when sub-prime mortgages were aquired by folks who could not afford the payment and were banking on home values rising and refi’ing their homes like it was an ATM machine. FHA is quite different from sub-prime. Poeple who get FHA loans are often folks new to California or younger folks who have not yet had the time to build up equity in another CA property to use as DP on a loan. As long as an individual has good credit, sufficient income, and a reliable sorce of future income, it does not matter if the home they purchase fluctuates in value in the market. Some people actually buy homes to live in them so value does not matter in the shorter terms. Don’t lump FHA loans with sub-prime. FHA requirements are Full Doc and not for folks with poor credit and stated income like the sub-prime borrowers of the past 5 years.