Posted: 28 Nov 2011 02:30 AM PST
In an effort to support prices of expensive homes, Congress has voted to increase the FHA loan limit to $729,750 through the end of 2013.
Irvine Home Address ... 3531 PECAN St Irvine, CA 92606
When the conforming limit for GSE and FHA loans went down in October, borrower spending power went down with it. In response to the dramatic drop off in demand, Congress has voted to increase the FHA loan limit back to $729,750 through 2013.
By Margaret Chadbourn
WASHINGTON | Fri Nov 18, 2011 2:43pm EST
It's far more than a sign of concern, it's an acknowledgement of the weakness in the market for high wage earners, a market that didn't used to get government support.
The FHA has been perverted. It used to provide home ownership opportunities for low and middle income Americans. It was never intended for supporting overpriced markets dominated by high wage earners like here in Irvine. Markets with prices requiring loans over $417,000 are supposed to be supported by savings and equity from previous sales. Since most Americans have no savings, and since home equity has been largely wiped out in the crash, the markets for high wage earners are looking for the government to bail them out.
This policy will undoubtedly cause more FHA losses because prices will continue to decline, and with the tiny down payments on FHA loans, borrowers will go underwater and many will strategically default. In short, this policy will shift losses from the private lenders and investors to the taxpayer -- to you.
The only silver lining to this policy is that it does not apply to GSE loans. It creates an unusual situation where FHA loans will proliferate despite their higher costs due to the FHA insurance.
Many buyers who don't have a 20% down payment (or who aren't willing to put that much down) can now bid up prices using FHA loans assuming they have the qualifying income. This will be an advantage to high wage earners who haven't saved much.
Of course, it is another government prop, and when it is removed, the artificial demand it creates will disappear with it, so buyers thinking of using this financing should beware.
This was "must pass" legislation, so that washes their hands of responsibility, right? Political posturing is bullshit. These idiots just passed a measure which will certainly result in major losses to the FHA -- the same FHA facing a government bailout soon. This is a stealth bank bailout nobody has the courage to take responsibility for.
California Republicans should hide their faces in shame. This is appalling. These Republicans call for reducing the footprint of government and simultaneously vote to keep the house prices inflated in their districts with more government largess.
The NAr will always argue for more government support. The mistake was made by the congressmen who listened to them.
Yes, it is distorting the market and impeding the recovery. This is a mistake.
The FHA will likely need a bailout despite their assurances to the contrary. As I reported recently, the only way they will avoid a bailout is if the market bottoms shortly and their legions of underwater loan owners do not strategically default. When their market prognostications prove to be wishful thinking, they will go back to congress for a bailout and claim no one could have foreseen the continuing fall in prices. Idiots.
Countrywide encouraged a peak-buying Ponzi
This house illustrates how fortunes are made and lost during a Ponzi scheme. Two owners ago, this property was purchased on 12/13/2004 for $695,000. Only 15 months later on 3/3/2006, the owner sold the property for $853,000 pocketing over $100,000 after commissions for his one year of ownership. That's the fun part.
The owner that followed was the bagholder... or was he. He paid $853,000 but he did it with Countrywide's money. He put nothing down. In fact, Countrywide didn't think that deal was good enough, so five months later, they gave him a new $748,000 first mortgage and a $93,500 HELOC. Then a few weeks later, they increased his HELOC to $187,000 enabling him to pull nearly $100,000 out himself -- after only owning the house less than six months.
It isn't hard to see why houses were so popular and why Countrywide went out of business.
Irvine House Address ... 3531 PECAN St Irvine, CA 92606
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