When the sub-prime mortgage loans crashed it was the FHA loans that saved the day. Millions of buyers that would have continued to rent or live with relatives were able to buy a home thanks to the Federal Housing Administration’s insured loans. Gary Thomas, the president of NAR (National Association of Realtors) explained this point in a recent testimony in front of the Senate Banking Committee. He went on to explain that the down turn in the real estate market would have been much worse if not for FHA.
Help for Buyers and Sellers
When the private lenders stopped offering loans to borrowers with credit below a 700 score, it left a big void in the market. When available funding ceases, buyers are usually left with no way to purchase a home. It also causes a general drop in real estate prices since sellers have to lower prices due to a fewer number of qualified buyers. If FHA had not made modifications to allow more borrowers a chance to qualify for a purchase we likely would not be seeing the positive signs of recovery that are currently being reported by numerous news outlets.
Steps to Avoid Risky Practices
In order to avoid another market crash, the FHA has taken several steps to ensure that the organization remains solvent and also to avoid taking on too much risk. For instance, the FHA mortgage insurance premiums have been increased 5 different times since the year 2009. This is to provide the necessary funds to help cover claims for families that lose their home to foreclosure. A credit risk analyst has been hired to oversee guidelines and more focus has been placed on enforcing existing laws to keep lenders responsible for their actions.
These and other steps have increased the overall quality of the average FHA borrower. The portfolio of mortgages currently under the FHA approval is one of the best groups of loans the agency has ever witnessed.
Most real estate agents and lenders feel that in time the real estate market will become stable. This safe environment will likely lead to an influx of new private lenders offering loans, but with better guidelines thanks to past mistakes. However, until that time comes, FHA is available and becoming strong each year to help people achieve their dream of buying a home.