FHA Loan Mortgage Defaults in High-Cost California Areas
FHA loan mortgage defaults are expected to continue in high cost communities in California because of the rising number of high cost loans guaranteed by the Federal Housing Administration in the state.
The FHA has been insuring loans not only in high cost neighborhoods; it has also been insuring mortgages covering four-unit residential units purchased with very low down payments.
In a particular home loan criticized by the New York Times, three technology professionals teamed up and bought a two-unit apartment worth almost $1 million with a loan insured by FHA and with only a $33,000 down payment.
Critics said that it would be easier for the borrowers to walk out on their FHA loan if they face difficulties because they invested only $33,000.
Based on data from the Mortgage Bankers of America, the default rate for loans taken out to buy 1-to-4-unit residential properties increased to 9.6 percent of all home loans in the July-September 2009, an increase of 40 points from the April-June quarter and an increase of 265 points from last year’s third quarter.
Jay Brinkmann, chief economist of the MBA, said that the default rate for FHA loan mortgage loans has risen despite a significant rise in approved FHA loans. Over the past 12 months, the number of home loans guaranteed by FHA rose by around 1.1 million loans, increasing the denominator for computing the default and foreclosure rates.
But still, according to Brinkmann, the default rate increased. He further explained that if the newly guaranteed home loans were not the ones getting delinquent, the rate of foreclosure would be higher at 1.76 percent, above 1.31 percent if the new loans were considered.
The MBA also reported that one out of every 6 FHA borrowers was in default on their home loans as of the three-month period ended September.
In the 1930s, FHA home loans were introduced to enable low-income families unable to afford the typical 20-percent down payments to own homes. They paid a higher insurance premium, but their down payments could be lowered to just 3.5 percent.
During this recession, the FHA loan limits were temporarily increased to stimulate the declining housing market, increasing conforming limits to $729,750 for single-family homes and to $934,200 for two-unit residential properties.
In California, which has the biggest number of foreclosure homes in the country, there are over 107,000 loan mortgage accounts guaranteed by the FHA this year, many of which are expected to default and go into foreclosure.
