Thursday, November 19, 2009

More on FHA Loans

by Bill McBride on 11/19/2009 11:39:00 PM

David Streitfeld at the NY Times adds some color: Easy Loans in Expensive Areas

In January, Mike Rowland was so broke that he had to raid his retirement savings to move [to San Francisco] from Boston.

A week ago, he and a couple of buddies bought a two-unit apartment building for nearly a million dollars. They had only a little cash to bring to the table but, with the federal government insuring the transaction, a large down payment was not necessary.

“It was kind of crazy we could get this big a loan,” said Mr. Rowland, 27. “If a government official came out here, I would slap him a high-five.”
...
For decades, most F.H.A. loans were in low-cost states like Texas and Michigan. ... The Economic Stimulus Act of 2008 helped change that by temporarily doubling the maximum loan the F.H.A. insured, to $729,750. A two-unit property like the one bought by Mr. Rowland and his friends can be insured for up to $934,200.
Hopefully this will work out for Mr. Rowland and friends, but now for the chilling quote:
Mr. Bedar, Mr. Rowland and the third partner in their property, Jordan Kurland, are all in the technology field, but their dreams of wealth do not feature stock options.

“We’re banking on real estate,” said Mr. Kurland, 24. “Everyone expects prices to keep going up.”
This will end well ... (sorry for sarcasm)

Note: The MBA National Delinquency Survey showed 15.04% of FHA insured loans were delinquent as of the end of Q3, and another 3.32% were in the foreclosure process. The FHA Early Warning System shows that delinquencies are rising steadily on loans originated over the last two years. Not good.

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