FHA Shennanigans: How Xiden Regime kept Mortgage Servicers and Ludicrous Prices Safe
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2025 Mar 13, 4:03pm 39 views 1 comment
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Patrick
2025 Mar 13, 4:16pm
Patrick
2025 Mar 13, 4:16pm
AmericanKulak says
Most of those borrowers' debts are several multiples of their incomes. People with $50K income buying $400K houses with 3.5% down, etc.
They must really mean (monthly interest payment / monthly income).
In 2007, 35% of new FHA borrowers had debt-to-income ratios above 43%. By 2020, 54% did.
Most of those borrowers' debts are several multiples of their incomes. People with $50K income buying $400K houses with 3.5% down, etc.
They must really mean (monthly interest payment / monthly income).
The problems began when the Obama administration eased underwriting standards by enabling more home buyers whose debt payments exceed 43% of income to qualify for government-backed loans. Such borrowers are risky because they might not be able to make payments if their income drops or expenses rise.
As home prices climbed, the Federal Housing Administration insured more loans to financially stretched borrowers with as little 3.5% down. No skin off lenders’ backs if borrowers later defaulted, since the mortgages were backed by the government.
In 2007, 35% of new FHA borrowers had debt-to-income ratios above 43%. By 2020, 54% did. As housing prices and inflation surged, borrowers became more stretched. The FHA kept insuring mortgages to borrowers who were increasingly leveraged. About 64% of FHA borrowers last year exceeded the 43% threshold.
The FHA loan portfolio is far riskier than it was before the 2008 housing crisis. The American Enterprise Institute’s Ed Pinto and Tobias Peter estimate that 79% of FHA first-time borrowers have a month or less in financial reserves—not enough to make mortgage payments if their household expenses rise, as most have owing to inflation.
No surprise, many are missing payments, especially recent borrowers. About 7.05% of FHA mortgages issued last year went seriously delinquent—90 or more days past when a payment is due—within 12 months. That’s more than at the 2008 peak of the subprime bubble (7.02%).
Under the guise of Covid relief, the Biden administration masked the growing troubles in the housing market by paying off borrowers and mortgage servicers to prevent foreclosures. Of the 52,531 FHA loans last year that went seriously delinquent within their first year, only nine resulted in foreclosure.
The FHA instituted a program that pays mortgage servicers to make borrowers’ missed payments for them. Missed payments are added to the loan’s principal, but without interest. The FHA also pays servicers to cut monthly payments for delinquent borrowers by 25% for three years, with the payment reductions also added to the principal without interest.
Consider a borrower who misses five $4,000 monthly mortgage payments. The servicer will add the $20,000 in missed payments to the mortgage and reduce monthly payments by $1,000 for three years—adding another $36,000 to their mortgage. So the borrower is $56,000 deeper in debt, though with no additional interest. If he misses payments again, the servicer rinses and repeats, getting paid $1,750 every time it lathers up. The FHA also lets servicers charge borrowers legal fees—typically several thousand dollars—that are added to the mortgage principal.
The FHA made 556,841 “incentive payments” to servicers over the past year to prevent foreclosures—nearly as many as the new mortgages it insured. Government-backed mortgage relief has become a cash cow for servicers, some of which originated the risky loans they are paid not to foreclose. Moral hazard, anyone?
https://archive.is/PVEyN#selection-6003.0-6043.311
(Because orig is behind paywall)