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Is FHA insurance endless?

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CANative

Thread Starter
Elite Member
Joined
Jun 18, 2003
Professional Status
Retired Appraiser
State
California
I don't have a real good understanding of FHA mortgage insurance. I've been reading brokeroutpost a lot lately and it seems that everyone and their brothers and sisters are scrambling to originate FHA loans. Many are trying to affiliate with lenders, set up net branches, hire managers and loan staff for newly qualified outfits to handle the presumed increase in volume for FHA insured loans. A flurry of activity.

Are FHA's resources unlimited? Is there a point at which the amount of risk is unsound?
 

Mr Rex

Elite Member
Joined
Jan 12, 2004
Professional Status
Certified Residential Appraiser
State
North Carolina
I think until the losses exceed the upfront and monthly insurance payments that the borrowers make in the total pool, that the answer is yes, its unlimited. Supposedly, FHA is self sustaining with the insurance premiums paid, but I don't think that pays for FHA employee salaries, although I may be wrong, but I thinks thats why their insurance is cheaper than market based PMI. So as FHA grows, it is a drag on tax payers. Maybe Brad P can shed some light on the funding of the bureaucracy, is it truly self sustaining or do taxpayers pay the salaries out of tax funds? In any case, its a form of government sponsored PMI, except in this version, the PMI payments stop when the principal reaches 78% of the original purchase price.
 

Bearslide

Senior Member
Joined
Dec 9, 2004
Professional Status
Certified Residential Appraiser
State
Pennsylvania
I don't have a real good understanding of FHA mortgage insurance. I've been reading brokeroutpost a lot lately and it seems that everyone and their brothers and sisters are scrambling to originate FHA loans. Many are trying to affiliate with lenders, set up net branches, hire managers and loan staff for newly qualified outfits to handle the presumed increase in volume for FHA insured loans. A flurry of activity.

Are FHA's resources unlimited? Is there a point at which the amount of risk is unsound?

My guess is that point will be reached fairly quickly as unscrupulous, desperate MB's scramble to make FHA the new sub-prime dumping ground. They have already been well schooled in the comp check, find the appraiser to guarantee value game. Now they're being schooled in "don't give the appraiser the case number" game, thinking they can get the finished appraisal, if they don't like it, re-shop it. The smart appraisers will not issue a report - or even a verbal - without that number.

If FHA and their corresponding lenders do not do better due dlilegence than their current track record, it's another disaster waiting to happen.
 

Randolph Kinney

Elite Member
Joined
Apr 7, 2005
Professional Status
Retired Appraiser
State
North Carolina
Are FHA's resources unlimited? Is there a point at which the amount of risk is unsound?
Yes, the resources of FHA are a government guarantee to cover the loss. It is like FDIC in that it collects a premium to fund liabilities. It is unlike FDIC in that the defaulted loans are direct liabilities of the government up to the loan limit. The government pays no matter if the insurance fund has no money in it. FDIC has no direct government guarantee for depositors where they get their money back other than what's in the insurance fund. The government may choose to fund the FDIC after the FDIC runs out of money.
 
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