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FHA = subprime, 12.4% interest cost of FHA insurance, 50% risk premium

By golfplan18   2012 Nov 29, 11:34pm   937 views   7 comments   watch (0)   quote

Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they have become the loan-of-necessity for anyone who doesn’t have the credit requirements or the down payment necessary to obtain other financing. In other words, they have stepped into the void left by the collapse of subprime lending. The FHA insurance premium is a direct measure of repayment risk divorced from interest rates. Ordinarily, this risk is rolled up into the interest rate, which is why...


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1   Oil Can     2012 Nov 29, 11:37pm  ↑ like   ↓ dislike (1)   quote    


2   Tenpoundbass   958/959 = 99% civil   2012 Nov 29, 11:46pm  ↑ like   ↓ dislike   quote    

At first I thought that 580 score was wrong. Last I heard it was 620.
But a quick search confirms it.
That is insane.

As noted by the California Association of REALTORS last week, Wells Fargo announced a surprise policy reversal in January regarding FHA loans. While competitive institutional lenders are raising FICO limits to 620 or better, Wells Fargo is lowering those limits to as low as 500. For FICOs between 500 and 579, the down payment requirement is 10%, and the down payment cannot be a gift from a relative. Borrowers with FICO scores of 580 to 619 will need to put down a minimum of 5%.

For home buyers with FICOs above 620, the minimum down payment requirement remains at 3.5% and gift funds can be used. Seller concessions toward closing costs remain at a maximum of 3% of the purchase price.

But it's not just FHA
This list says the min score for FHA is 530, but I don't know how old it is.
Fannie Mae requires a minimum score of 620
Freddie Mac requires a minimum score of 620
FHA requires a minimum score of 530
VA requires a minimum score of 530
USDA requires a minimum score of 620
Portfolio requires a minimum score of 640

3   atst1138     2012 Nov 29, 11:49pm  ↑ like   ↓ dislike   quote    

FICO is irrelevant in the near term. What matters are the stipulated exclusions. My FICO is 700 18 months post FC but I can't qualify due to the 3 year rule at FHA and 7 year rule at FM/FM.

4   Goran_K   134/134 = 100% civil   2012 Nov 30, 1:42am  ↑ like   ↓ dislike   quote    

CaptainShuddup says

FHA requires a minimum score of 530
VA requires a minimum score of 530


When I got out of college, got my first analyst job, and moved into my first apartment I needed to get a car. They ran my credit at the used car lot, and it was 540.

I only had an apartment lease, two utility bills, one credit card, a bank account (with about $2,700 from college tutoring jobs), and about $15,000 worth of school debt to my name.

How the heck do people with a FICO score like that get a loan to buy a house?!

5   Kevin     2012 Nov 30, 3:40am  ↑ like   ↓ dislike   quote    

They pay a lot more than people with good credit. Same as any credit situation. A point more in interest, a point for insurance.

6   Goran_K   134/134 = 100% civil   2012 Nov 30, 3:52am  ↑ like   ↓ dislike   quote    

Does it matter? FHA is negative $13,000,000,000 in the hole.

7   iwog   1469/1470 = 99% civil   2012 Nov 30, 4:02am  ↑ like   ↓ dislike   quote    

Assuming the housing crash is over and we're entering a period of slow (or fast) appreciation, the risk is nearly zero.

These people are going to pay rent regardless so it's an attempt to tap into those payments for the benefit of the housing market.

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