Dr. Housing Bubble — FHA loan guarantees now amount to $1.1 trillion: Upcoming changes to FHA mortgage insurance premiums and the cost of low down payment loans.

FHA insured loans stepped in to take up a lot of the slack when other low down payment loans exited the market in 2007. FHA insured loans are still a low down payment option requiring only 3.5 percent down but at least with these loans, some level of due diligence is done when looking at potential borrowers. Yet over the last few years, FHA insured loans have gone from a tiny piece of the housing market to now being up over $1.1 trillion in loan guarantees outstanding. The housing market is now becoming largely bimodal with all cash buyers picking up better properties while those with barely any down payment funds opt to go the FHA route. Given how expensive FHA loans have become, it is apparent that a large portion of the population doesn’t even have enough to enter the housing market without 30x leverage. Changes are also coming to FHA insured loans that will make them more expensive in a few months. Why are these loans getting more expensive when the housing market is supposedly robust?

Dr. Housing Bubble
FHA loan guarantees now amount to $1.1 trillion: Upcoming changes to FHA mortgage insurance premiums and the cost of low down payment loans.

Dr. Housing Bubble does FHA

The dramatic rise in FHA insured loans in a time of historically low rates demonstrates two key aspects of the current American economy. The first point is that many US households have the inability to save for an adequate down payment on housing. Forget about the historical 20 percent down payment but many households cannot scrimp up even a modest 10 percent down payment. The second point is the American economy is still living on leverage. Debt is an elixir best served in moderation but as we are seeing with the low mortgage rates, the country is now setting a threshold where low rates are expected. As a case and point we now see FHA insured loans playing a major role in the housing market. Since Q2 of 2007 the number of FHA insured loans outstanding has more than doubled. This would not be such an issue if they weren’t defaulting in mass.

Read it at Dr. Housing Bubble
The resurgence of the low down payment market – The number of FHA insured loans has doubled from Q2 of 2007 to Q2 of 2012.
Dr. Housing Bubble

Short post well worth reading.