FHA warning~

User Forum Topic
Submitted by HLS on August 19, 2013 - 11:03am

**WARNING** FHA has become MUCH more expensive. ANY new FHA loan is going to have mortgage insurance FOR THE LIFE OF THE LOAN~
(FHA advantage is you can have crappy credit, have monthly debts of up to 50% of your income and only need 3.50% down)
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(Conventional loans (FNMA/FHLMC)require higher credit scores but are possible with 5% down, monthly debts max at 41% of income and mortgage insurance will be removed at 78%)
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The premise that FHA exists to make housing affordable is poppycock. In reality it allows people to buy a house that really cannot afford it, and artificially pushes prices up by allowing small down payments.
(It actually makes housing unaffordable to many)
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Applications for FHA single-family loans dropped off a cliff in June as a regressive mortgage insurance policy kicked in early in the month and borrowers were dealing with rising mortgage rates.

Loan applications fell nearly 50% in June from the prior month.

The new report shows that FHA applications fell to 93,700 in June from 182,400 in May. Applications for FHA purchase mortgage loans fell to 57,650 in June, down 43.5% from the prior month.

Starting June 3rd, a new policy makes FHA loans more expensive longer-term. Mortgage insurance on new FHA loans can no longer be canceled when the LTV ratio hits 78%. FHA borrowers must pay a 1.35% annual premium over the life of the loan. (With private MI, the annual premium is cancelable.)

On April 1, FHA raised the annual premium 10 bps to 1.35%. And loan applications filed in April fell to 118,200 from 221,600 in March.

FHA has increased premiums five times over the past two years and according to the FHA commissioner “we are clearly at a tipping point here,If we increase them more, we would actually shut out additional homebuyers,”

Submitted by spdrun on August 19, 2013 - 11:06am.

Good. If it exerts some downward pressure on prices, I won't be weeping bitter tears of disappointment :)

Submitted by bearishgurl on August 19, 2013 - 12:00pm.

The next thing the FHA should do is LOWER their LOAN LIMITS in many counties of the USA where they are set too high for the type of borrower the FHA services! They SHOULD HAVE already done so.

$697K in San Diego County is WAY TOO HIGH of a loan limit for a typical buyer who avails themselves of FHA financing. That is a joke, folks and the joke is on us.

I've posted here on numerous occasions that the FHA 203(b) program was originally formed to give low and moderate-income buyers (vast majority FTB's) a "leg-up" into homeownership. Not a "luxury" home but a roof over their heads. That is all.

It wasn't in any way, shape or form invented to assist buyers in the purchase of "move-up" or "luxury" properties or in "move-up" or "luxury" areas.

In SD County, the FHA loan limit should not exceed $300K. This would enable a typical FHA buyer putting 3.5% down to buy a home costing $310,500 ... in other words ... a "starter home."

The 203(b) loan limits for 2-4 units are also way too high for SD County:

https://entp.hud.gov/idapp/html/hicost1.cfm

The new MIP's are as they should be. The program is backed by taxpayers and $300K is more than enough risk to take on as no matter how high the MIP deposits and premiums rise, they will NEVER BE ENOUGH to cover the level of FHA defaults inherent in the type of borrower attracted to it (read: has VERY little downpayment saved up).

Submitted by bearishgurl on August 19, 2013 - 12:06pm.

HLS wrote:
... FHA has increased premiums five times over the past two years and according to the FHA commissioner “we are clearly at a tipping point here,If we increase them more, we would actually shut out additional homebuyers,”

LOL ...

Why does anyone care if "additional (borderline or below borderline?) homebuyers" are "shut out?" If they can't afford the monthly payment with FHA MIP added on, then they are trying to buy too much home ... period. They're not putting more than 3.5% of their OWN money down so what do they expect?

Submitted by HLS on August 19, 2013 - 12:42pm.

BG,
it is all part of the 'entitlement' culture and the short term views that most people have.
No sacrifice! The word austerity is not in their vocabulary....

"most Americans are only focused on the short-term because the mainstream media is only focused on the short-term. Things are good this week and things were good last week, so there is nothing to worry about, right"?

Many articles have been written that have interesting perspectives, but most people either want to dismiss them as nonsense or just ignore that they exist.

1. http://theeconomiccollapseblog.com/archi...

2. http://theeconomiccollapseblog.com/archi...
****************************
Ignorance is bliss.

Submitted by The-Shoveler on August 19, 2013 - 1:12pm.

I don’t really think much has changed with the entitlement mentality (well for the last 50 years anyway), the only real change is inflation used to have borrowers back to a certain degree. What I remember being told when I was looking for my first house "buy as much house as you could possibly afford, your wages will grow into it".

The current low wage inflation since 1990 or so is very strange.

Submitted by spdrun on August 19, 2013 - 1:19pm.

What's wrong with "buy the cheapest house that suits your needs and when your wages go up, take some nice vacations, go for extra university courses, or spend it on the arts?"

Submitted by The-Shoveler on August 19, 2013 - 1:22pm.

kind of un-american, Just kidding sort of.

Submitted by livinincali on August 19, 2013 - 1:26pm.

The-Shoveler wrote:
I don’t really think much has changed with the entitlement mentality (well for the last 50 years anyway), the only real change is inflation used to have borrowers back to a certain degree. What I remember being told when I was looking for my first house "buy as much house as you could possibly afford, your wages will grow into it".

The current low wage inflation since 1990 or so is very strange.

No. What had borrowers back is the steady decline in interest rates for the past 30 years. You could increase your total debt load for the same monthly payment as rates declined. You didn't need income growth to increase your total debt load you just needed the decline in interest rates. Everybody that is levered up and plans on re-rolling debt is going to be screwed in the future.

This is the reason why higher than average inflation isn't a way out. Nobody lends at a loss so higher than average inflation will push short terms rates higher than inflation and most won't be able to afford the significantly higher monthly payments when they have to roll over the debt. Those that hold 30 year MBS written now are screwed. Of course it's probably CalPRES and other public sector employee pension funds holding most of that junk but they don't care because they expect to get bailed out.

Submitted by The-Shoveler on August 19, 2013 - 1:36pm.

You obviously were not of working age during the 70's and 80's
or 60's LOL.

I remember getting 30% raises almost every year.

Submitted by livinincali on August 19, 2013 - 2:11pm.

The-Shoveler wrote:
You obviously were not of working age during the 70's and 80's
or 60's LOL.

I remember getting 30% raises almost every year.

Oh really. Let's see how that compounds.

1960 you make minimum wage of $1.00 per hour. Let's assume 2000 hours worked for $2000 a year. What does 30% raises every year for 20 years do. In 1970 you're making $27,571 per year. In 1980 you're making $380K. I really believe it. I'm guessing you got a 30% raise probably 1 once or twice in your first couple years of working. After that, eh not so much huh. Because if you did by 1990 you'd be making $5+ million per year.

1960 $2,000
1961 $2,600
1962 $3,380
1963 $4,394
1964 $5,712
1965 $7,426
1966 $9,654
1967 $12,550
1968 $16,315
1969 $21,209
1970 $27,572
1971 $35,843
1972 $46,596
1973 $60,575
1974 $78,748
1975 $102,372
1976 $133,083
1977 $173,008
1978 $224,911
1979 $292,384
1980 $380,099
1981 $494,129
1982 $642,368
1983 $835,078
1984 $1,085,602
1985 $1,411,282
1986 $1,834,667
1987 $2,385,067
1988 $3,100,587
1989 $4,030,763
1990 $5,239,991

Nice try though. Math >>>>> I remember 30-50 years ago.

Submitted by The-Shoveler on August 19, 2013 - 2:26pm.

Well it was not every year but there were quite a few because you were getting promotions as well as cost of living raises (based on the cost to BUY a house by the way).

My wages easily doubled every 5 years from 1973 to 1990. My first new car in 1976 was worth about what I paid for when I paid it off in 1979.

You would have had to be there but putting money in the bank was not the best choice in those days, investing in hard assets was.

Dang I have to check again, but I think more like tripled every 5 years.

Submitted by all on August 19, 2013 - 2:27pm.

spdrun wrote:
What's wrong with "buy the cheapest house that suits your needs and when your wages go up, take some nice vacations, go for extra university courses, or spend it on the arts?"

In many cases the needs grow as you grow. I remember sharing 1/1 with a roommate, no dishwasher and a sink that can hold 4 plates and enjoying it. Going on a trip from Bari to London with $50 in my pocket and no credit card. It is slightly less enjoyable with 3 kids in tow. In general kids change perspective. Especially if they are yours.

Submitted by spdrun on August 19, 2013 - 2:38pm.

"Needs" can include future needs. If you're planning on kids in the next 5-10 years, go for a 3/1 or 3/2, IF you can afford it comfortably with your current income. If you can't, how the hell are you going to afford kids in the first place? :)

This being said, I'm going for the Big Snip(tm) after my first kid. I want a kid eventually, but not a brood. It's not 1912 where a lot of kids die of childhood diseases, and Gaia is suffering under the strain of overpopulation as it is!

And it's not impossible to travel on a budget with kids; you just need to be creative. (My family did that in the 90s; it wasn't really hard if you liked small hotel rooms, apartment shares, and camping :) )

Submitted by all on August 19, 2013 - 3:52pm.

spdrun wrote:
"Needs" can include future needs. If you're planning on kids in the next 5-10 years, go for a 3/1 or 3/2, IF you can afford it comfortably with your current income. If you can't, how the hell are you going to afford kids in the first place? :)

I lived with my parents and grandparents for few years in a farm house that had no running water (consequently no washer) until about a year after I was born. I know first hand that a family of N can survive in a small house with no traditional bathroom.

To this day I get sentimental when I sense grass blades on my tushy, but most of the time I prefer my current 0.8 baths per capita living arrangement.

Also, your one offspring won't be enough to sustain the human race, so I'm simply offsetting your lack of commitment to the needs of the specie.

Submitted by spdrun on August 19, 2013 - 4:16pm.

The human race will survive a LOOOOONG time with one child per couple. This being said, I'm assuming you can comfortably afford your 0.8 baths per human. And were able to afford them when you bought them.

If you're single, this begs the question of (if you're buying a family-sized house), why not buy a duplex? You can live in one apt, keep the other one rented while you're single, then take over the second apartment as your family grows.

And perhaps re-duplex it when the kids move out.

Submitted by The-Shoveler on August 19, 2013 - 4:36pm.

There has not been a pandemic in long time.
Not saying it's going to happen, but you never know.

Still waiting for that big asteroid to hit in the pacific, or that volcano off Africa to collapses.

Submitted by The-Shoveler on August 19, 2013 - 4:56pm.

Or This, I mean honestly What could go wrong?

DARPA Wants Computers That Fuse With Higher Human Brain Function

"In the never-ending quest to get computers to process, really understand and actually reason, scientists at Defense Advanced Research Projects Agency want to look more deeply into how computers can mimic a key portion of our brain. The military's advanced research group recently put out a call, or Request For information, on how it could develop systems that go beyond machine learning, Bayesian techniques, and graphical technology to solve 'extraordinarily difficult recognition problems in real-time.'"

Submitted by moneymaker on August 19, 2013 - 7:36pm.

Why limit a computer to the level of human thought? Why not create them to be perfect! That might answer the question of who made god. Perhaps created by an imperfect race to be perfect. Is it possible? i believe so

Submitted by SK in CV on August 19, 2013 - 7:38pm.

moneymaker wrote:
Why limit a computer to the level of human thought? Why not create them to be perfect! That might answer the question of who made god. Perhaps created by an imperfect race to be perfect. Is it possible? i believe so

Dave, I'm afraid I can't do that.

Submitted by ucodegen on August 21, 2013 - 1:06am.

The-Shoveler wrote:
Well it was not every year but there were quite a few because you were getting promotions as well as cost of living raises (based on the cost to BUY a house by the way).

My wages easily doubled every 5 years from 1973 to 1990. My first new car in 1976 was worth about what I paid for when I paid it off in 1979.

Apply rule of 72... approx increase would be 14.4% not 30% to match that rate of increase. 30% would mean doubling every 3 years not 5.

SK in CV wrote:
moneymaker wrote:
Why limit a computer to the level of human thought? Why not create them to be perfect! That might answer the question of who made god. Perhaps created by an imperfect race to be perfect. Is it possible? i believe so

Dave, I'm afraid I can't do that.


Hummm.. nice reference!! And of course a disaster caused by political types f.. w... l.... c.... n........ (don't want to give away the ref, yet)

Submitted by moneymaker on August 21, 2013 - 3:00am.

Since were on the subject of math. Zillow says my place just went up $10,800 in the last 30 days. If I were to add up all the increases since I've been checking out Zillow, my place would make me a millionaire, perhaps several times over. Any how who am I to argue, that is unless the gov wants me to start paying taxes on a home worth over a million dollars.

Submitted by The-Shoveler on August 21, 2013 - 6:26am.

It was NOT every year but I remember quite a few.

Average U.S.A. home price went from 29K in 1973 to about 125K in 1990.

California home prices went up quite a bit higher in price as did California wages.

I think you would have had to live it.

Submitted by The-Shoveler on August 21, 2013 - 7:30am.

Anyway, something to think about if we ever start seeing wage inflation north of 8% again.

Submitted by all on August 21, 2013 - 8:27am.

SK in CV wrote:
moneymaker wrote:
Why limit a computer to the level of human thought? Why not create them to be perfect! That might answer the question of who made god. Perhaps created by an imperfect race to be perfect. Is it possible? i believe so

Dave, I'm afraid I can't do that.

But are you sorry?

Submitted by livinincali on August 21, 2013 - 8:37am.

The-Shoveler wrote:
Average U.S.A. home price went from 29K in 1973 to about 125K in 1990.

That's not what this chart says. Seems more like 100K was the average home price in 1990 and it didn't break 125K until 1999-2000

Submitted by The-Shoveler on August 21, 2013 - 9:33am.

Try the US Gov census.

http://www.census.gov/const/uspricemon.pdf

But I think this is missing the point,

It is the strangeness of the lack of wage inflation since 1990.

Submitted by carlsbadworker on August 21, 2013 - 10:32am.

But couldn't the FHA borrowers just refinance after LTV drops below 78% to conventional loan? What's the big deal?

And I am actually confused why the FHA does this as well. I always thought it is a ponzi game. So what are they going to do if there are no new applications (new money) going in? Ask for the government bailout if the existing customers failed to pay?

Submitted by spdrun on August 21, 2013 - 10:34am.

Perhaps this is a back-door attempt to wind down FHA loans entirely.

Submitted by livinincali on August 21, 2013 - 11:57am.

The-Shoveler wrote:
Try the US Gov census.

http://www.census.gov/const/uspricemon.pdf

But I think this is missing the point,

It is the strangeness of the lack of wage inflation since 1990.

That's for new homes only. Which is a minority of the overall home sales.

That was my point we didn't need wage inflation because people we're perfectly comfortable expanding debt and leverage in a falling rate environment. Home prices could continue to go up without the expansion in wages because the monthly payment fell with the lower rates.

So the question is what happens when rates go up. If wages continue to experience low inflation then home prices will fall. If wages do experience the inflation you seem to think is a solution then you would expect rates to increase even faster. Of course if the rates expand at a rate greater than wages then home prices still fall. It's going to be a negative feedback loop that will trap people in homes that are purchased now. They won't be able to get that monthly payment again and they won't be able to sell at a reasonable profit until they pay down a lot of the debt. We had falling rates as a trend for 30 years. We had a positive feedback loop to expand debt into that environment. When that changes assets that are bought and sold with leverage will suffer.

Submitted by The-Shoveler on August 21, 2013 - 12:35pm.

For those who get fixed rates and buy the house they want, I guess it comes down to flow.

It looks like a good theory,
But in a world where the fed Gov regulates minimum wage and interest rates, well I guess we will have to wait and see.

Also I am not necessarily advocating wage inflation, just stating what we have seen in low wage inflation and become so use to it as to not be able to imagine what 10% wage inflation would look like, a world most other nations have to deal with.

It is not the norm is all.

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