Loan Modification

Mortgage loans: Rising home vacancies suggest fading ?American Dream?

By Karen Lawson

The US Census is reporting rising home vacancies, and younger Americans may be turning away from the idea that home ownership is necessary for financial security. With mortgage lenders arbitrarily increasing FHA minimum credit score requirements, it’s no wonder that anyone but those with pristine credit can qualify to buy homes. CNBC real estate  reporter Diana Olnick cites home vacancy rates in principal cities  rising from 3.6 percent during the fourth quarter of 2010, as compared to 3.1 percent one year ago. The vacancy trend is more pronounced in inner city areas and distant suburbs, while suburbia is suffering fewer home vacancies. This trend is particularly troubling in the context of FHA loans, which are designed to provide affordable home loans for moderate income borrowers  and communities under-served by conventional mortgage lenders and their stricter lending criteria.

Mortgage rates remain relatively low, which is an extra incentive for anyone wanting to take advantage of discounted home prices in many areas. Unfortunately, it seems that many would be home buyers either aren’t interested or cannot qualify for the mortgage loans needed. Ms. Olnick’s assertion that credit has become “very nearly elitist” describes the problem for buyers ready to purchase, but who face unrealistic credit requirements, including lenders who raise the bar by requiring higher credit scores than FHA minimums.  The conservative credit environment does further damage to responsible borrowers who maintained good credit for years, but who fell victim to long term unemployment and/or their ability to sell a home worth less than the mortgage amount(s) against it.

FHA: The last holdout for moderate income home loan borrowers?

The fact that FHA is the “only game in town” for moderate income and credit challenged borrowers is troublesome for multiple reasons:

FHA exposure is greater than it should be due to its market share: Last year, FHA cash reserves for its mortgage insurance programs fell below the legally mandated minimum after the agency paid claims on high numbers of non-compliant FHA mortgage loans made hastily after the sub-prime crisis dried up funding sources for buyers. FHA scrambled to fill the gap left by sub-prime lenders, but failed to ensure that FHA mortgage loans made in the aftermath of the sub-prime crisis met FHA guidelines. Although FHA is making efforts to tighten its oversight of approved lenders, and has made lenders accountable for FHA loans originated by mortgage brokers, the bottom line is that FHA  has assumed a great deal of risk as the predominant safety net for mortgage loans made with low down payments and flexible credit requirements.

FHA loans, public policy, and doing what’s right: “Elitist” is a scary word when used to describe mortgage lending practices. Are we a nation that believes only the and most credit worthy among us should own homes? Somehow, FHA has become the lone financing source  of moderate income home buyers and homeowners, and could use a little help (or friendly competition) in the realm of “realistic lending” during these tough times.

Full post as published by FHA Mortgage Guide on February 02, 2011 (boomark / email).