Future of FHA loans

The homeowners are facing difficult times these days due to the current mortgage market meltdown. Sagging home prices and numerous foreclosures have had a grave impact on the lending programs offered by private lenders. Those lenders who offered 100% mortgage loans are now offering only a part of the amount required to purchase the property. That means the homeowners require additional funds to acquire their dream home. Also, the lenders are placing stringent lending guidelines which are causing a tremendous slowdown. Almost 200 non-prime lenders are facing bankruptcy and have literally closed up their offices.

So, the current situation would improve only when some miracle happens. However, FHA loans are offering relief to homeowners that are reeling under heavy interest rates and increased payments. Those individuals with blemished credit can now refinance their ARM’s using FHA loans. They can say goodbye to the high rate of interest and prepayment penalties with these FHA loans. Federal Housing Administration is working hard to modernize the lending practices to facilitate the potential homebuyers and also current homeowners to get finance from the rarely utilized FHA secure programs.

The modernization reforms of FHA are bringing the desired results among the distressed homeowners. There is slight decline in the rate of foreclosures due to the FHA loans. But, the real success of FHA is still in question as only few homeowners meet the eligibility criteria set for these loans. On the other hand, FHA has raised the loan limit from $362,000 to $417,000 in order to match the present value appreciation of the properties. Also, it has eliminated the 2.25% mortgage insurance premium and instead makes use of risk based mortgage insurance that facilitates the borrowers to get hold of lower market rates contrary to the market rates offered by subprime lenders which is almost 3% more than the prevailing market rates. Also, as the FHA cannot offer appealing loans like interest only arms, they are offering long term loans for a maximum period of 40 years with amortizations. So, the borrowers can still reduce principal even when they pay lower monthly payments.

FHA can be a great option to the nonprime loan as the finance method takes a holistic approach to the loan approval more willingly than severe FICO credit requirements, facilitating more borrowers to succeed in getting loans. Alternative lending and rising house prices during the housing boom sometime back has left FHA only helping a very tiny percentage of the mortgage market. But, now due to the falling mortgage market and stringent norms set by the private lenders, FHA loans are much sought after by many homeowners. So, it is very clear that more and more people would tend to apply for FHA loans to get relief from the rising interest rates and demanding lenders. However, the number of people qualifying for the loans is less due to the rules set by FDA. If the FDA relaxes its norms a little bit, more borrowers will qualify for the loan and the practice will bring more profit to the agency.

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