will all loans become FHA if insurers fail?

[sniglet]

[rose-colored-coolaid]

If 20% were to become a requirement again due to no real estate insurance, even just temporarily, we would see lower real estate prices (adjusted for inflation) than at any time since the great depression. That's the power of leverage in reverse.

[sniglet]

[sniglet]

[rose-colored-coolaid]

[Charles Dean]

They said 5 years ago that MI companies were going to go away with the advent of the 80/20 loan and they almost did because no one needed to buy their product.

Now that they're making money and have a product that people want again, they're also going to go away? I doubt that.

They'll take a hit for sure, but since secondary financing is completely gone now, there will always be MI companies. Even if some of them do go out of business. The industry won't collapse.

[jillayne]

I'm not so sure all loans will go FHA.

Even though FHA's downpayment requirement is 3%, soon to be 3.5% (and all of this can be in the form of a gift) FHA's underwriting guidelines are strict.

Cream puff conforming will be sent to the GSEs, everyone else to FHA, and to those who cannot meet FHA's guidelines, those folks will go to hard money lenders or back to the local, state-chartered banks....what's left of them when this mess is over....at much, much higher interest rates.

[Charles Dean]

The latest housing bill pretty effectively killed FHA's relevance again though.

The main advantage for FHA before subprime and zero down hit was that it was the downpayment assistance program. It made FHA essentially the only zero down loan out there outside of VA and USDA mortgages.

That latest housing bill eliminated the downpayment assistance program, so now FHA is again no longer competitive.

It will be for those who have sub 660 credit scores. FHA guidelines are difficult and it's a much more expensive loan to get than a traditional conventional mortgage.

[sniglet]

[Charles Dean]

There are still plenty of 3% or 5% down options that are non-FHA. Just traditional conventional loans.

[sniglet]