The FHA was created in 1934 to get the housing industry off its feet. According to the FHA, mortgages were tough to come by for most homeowners, requiring 50%+ down payments and short-term notes with balloon payments, and only 40% of households owned their home. This new program allowed more Americans to buy homes in the post-war boom and made the housing industry a cornerstone of the economy. The catch? Homeownership levels are now over 64% (according to the census bureau) and the program continues to operate at no cost to the American taxpayer through the mortgage insurance premiums….a brilliant program started by FDR that remains to this day. Do we have it in us again?
FHA loans are great for some homeowners, but life of loan mortgage insurance premiums are a turn off for most homeowners with better credit since they can get similar terms with conforming products and drop the PMI earlier. Borrowers should talk to their mortgage professional when deciding what program is best for them, but it seems the industry is itching for a better product for those who don’t want the standard list of options. MJ wrote last week about the wave of incoming non-QM loans (here and here) and the possible fallout we could see in the industry if we don’t learn from our mistakes from the crash in 2008. Non-QM loans would be great for originators and borrowers, but who will back these products?
We need another FDR-style program like the FHA that will grant flexibility in the industry and allow more Americans to become homeowners. Non-QM loans could be the answer, but with no consistency in investors backing the loans, it is tough for lenders to originate loans they are not confident they can sell. I don’t know the answer for the industry, but I do know we likely won’t see large-scale change from our current Administration. FDR created 16 new agencies and laws within his first 100 days in office (FHA being one of them) and our current government cannot come to an agreement on simple spending bills. Fannie and Freddie control most of the housing market now, but if they can get together and come up with a better program for borrowers who don’t conform to their guidelines, we could see changes for the better. Uniform Mortgage Backed Securities are set to begin in June 2019, perhaps this is the first step in the right direction for a shift in lending across the country. Only time will tell.
Photo by Tobi Oluremi on Unsplash
The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation.