will all loans become FHA if insurers fail?
It looks like the mortgage insurers are on an increasingly shaky footing. Will all mortgages go the FHA route if the mortgage insurers fail?
It's almost looking as if the entire private sector real-estate finance industry is about to disappear. First private securitization disappeared, and now we are seeing the mortgage insurers implode. The only entities left will be those that are backed (and bailed out by) the government.
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/13/AR2008081303539.html
It's almost looking as if the entire private sector real-estate finance industry is about to disappear. First private securitization disappeared, and now we are seeing the mortgage insurers implode. The only entities left will be those that are backed (and bailed out by) the government.
If the industry loses its footing, it could transform the way consumers buy homes, either with a return to 20 percent down payments or a shift of even more of the market to the Federal Housing Administration.
Challenges facing the industry are significant. Credit-rating agencies, including Moody's Investors Service, have downgraded some of the largest players. One firm, Triad Guaranty Insurance Corp., is going out of business. Shares of Radian Guaranty, Triad and PMI Mortgage Insurance have lost 90 percent of their value in the past year.
http://www.washingtonpost.com/wp-dyn/content/article/2008/08/13/AR2008081303539.html
Comments
But this would just be a return to the way things were in the '80s, and that wasn't exactly a terrible time.
In any event, perhaps the only thing that would happen if the mortgage insurers went bust would be that all loans wound up going through FHA. That wouldn't be such a bit deal, would it?
Maybe this is just the way things will be in the future: most loans will just go through FHA. It's looking more and more as if the private mortgage finance industry is dead-in-the water.
http://www.raincityguide.com/2008/08/08/mortgage-rates-on-a-friday-afternoon/#comment-323481
I agree in principal, but disagree in the results we draw. Such standards were great in the 1980s because they were no more strict than what was seen before.
Exhibit A) how many homeowners are now underwater or have essentially no equity.
Exhibit
Going back to 20% down right now will cut the legs out from under the industry. If many buyers were putting 3%-5% down, that tells you they could only have afforded 1/4th (or less) the house if required to put 20% down. This doesn't mean we'll see prices cut by 75% or anything, but it would essentially shut down the market for a time.
Combine that with rising foreclosures and I think it's possible such action in the market would truly destroy housing as an asset in a very brief period of time.
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.
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.
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.
Not competitive with what? What options other than FHA are currently open to borrowers who want/need to put less than 10% down?
http://mrmortgage.ml-implode.com/2008/09/01/say-goodbye-to-95-fanniefreddie-loans-10-soon-to-be-required/