The New FHA proposal: Deja Vu All Over Again!
Tuesday, September 25, 2007 | Ethan Roberts Is this Spam?Did you see the story the other day about the senate passing a bill to create changes in Federal Housing Authority (FHA) mortgage loans?
Led by that stalwart of backwards thinking, Senator Chris Dodd (D-Connecticut), the senate has now proposed that FHA will make the following changes to their loans:
Reduce the 3% down payment requirement to 1.5%
Increase the maximum loan amount to $417,000
Require only a 499 minimum credit score
Increase loan terms to 40 years
This came only a day after the House of Representatives passed their own, very similar bill. These guys are just tripping over each other to see who can be the biggest dopes!
Somebody pinch me, because I must be dreaming. Didn't we just find out that giving mortgages to people with sub par credit and at a minimal Loan to Value(LTV)is a sure fire recipe for defaults?
Ok Senators, I get it, you all have political aspirations, and Wall Street and the little people will love you for this. But isn't this "Deja Vu all over again", as Yogi Berra was once quoted as saying?
Another weak housing number was reported today, along with a continuation of declining prices for August. But don't despair, ladies and gentlemen, because our brilliant leaders have found the cure. Their solution is to offer the same ridiculous terms in FHA loans that were being handed out like candy before in conventional loans. In other words, to solve the problem, let's do the same thing that didn't work before.
So how is that different? Simply because FHA guarantees these loans. Which means that this time when the loans go into default, FHA will pay off the lenders, and take the hit for the loss. But who pays to fund FHA? Why, you and I, Joe and Sally Taxpayer, that's who!
Sadly, mortgage lenders have become the new scapegoat for a society that has forgotten how to save and pay its bills on time. Washington is spinning the lie that "Predatory Lenders" caused the mortgage crisis and are now the reason that home prices have declined.
By scapegoating the lenders for promoting adjustable rate loans, politicians completely overlook the real facts. The desire among consumers for high LTV mortgages, coupled with their irresponsibility in handling money was as much to blame as were the lenders for the nightmare of foreclosures that is now sweeping the country.
At least with the 100% conventional loan (ie "zero down"), a borrower in recent years needed a 580 credit score to qualify. If FHA merely requires a 500 credit score, that means that 98.5% LTV loans will now be given to people with some of the poorest credit histories around!
And how about that 40 year loan? As a country, America is now way over its head in debt. Credit card debt is at new highs, and charge offs and delinquincies are everywhere. Do we really need the 40 year mortgage to dig the hole deeper? Will the home buyers of tomorrow be teenagers?!
America, wake up. Save and invest your money. Get out of debt. Start paying your bills. Teach your children good money skills. And stop blaming the other guy for your inability to budget your own money.
This new FHA bill is the worst piece of legislation to be passed in a long time. It's like trying to put out a fire with gasoline. Simply put: It's like......deja vu all over again!
