The conventional lending system wants more skin in the mortgage game. We all get that. But should it be an arm and a leg?
It’s driving FHA off the playing field.
Because of the risks now associated with home mortgages, the Federal Housing Administration has become our go-to guy for loans. That’s because all FHA loans are insured by the federal government against default. Since the mortgage meltdown and the resulting stringent lending guidelines, more borrowers have taken the less onerous road offered by FHA requirements.
The problem is that road has become jam-packed with people who were never supposed to be on it. FHA was founded to make loans to a select number of people based on need and income. It has gone to funding 3 percent of all mortgages in 2006 to more than 40 percent today. More loans mean more delinquencies and the Department of Housing and Urban Development (the agency that oversees FHA) now has its capital reserve ratio below the level that Congress mandates.