The theory for its implementation by Congress was to help jump start the economy getting people to own their own homes.
FHA loans today only require a 3.5% down payment and due to this low down payment requirement it's no surprise it's a favorite among first time buyers.
The implementation of the FHA program provided a uniform set of guidelines banks could follow and should the loan ever go into default the lenders were compensated for the loss, something that banks couldn't obtain lending directly to a buyer with the bank's own funds. If a loan went bad the bank would be on the hook for the balance, losing a considerable amount of equity. Too many such bad decisions and the bank would be shut down.
As long as the lender approves a loan using proper FHA protocol the lender guarantee applies. Banks welcomed the FHA program with open arms.
For banks, FHA loans help establish long term relationships and opens up the bank for more client building benefits such as checking and savings accounts, consumer credit and other profit-centered lines of business.
The Beginning of The End of FHA Guidelines
According to a recent report by the American Enterprise Institute , large banks funded six out of every 10 FHA refinance loans in 2013. As of Q2 2016, that share has dropped dramatically to a paltry 6% share. Any such drop in any measured category clearly shows that going from 60% to 6.0% is more than just noticeable.
No, not according to the same study. Again as of Q2 2016, non-bank lending has a 90% share of the FHA market. Home Point Financial is in this non-bank category.
These large banks apparently have made a conscious business decision to abandon the FHA market and opening up more opportunities for non-bank lenders to originate, process and fund this lucrative e time. Banks have been on the receiving end of costly lawsuits under the False Claims Act , enacted to protect taxpayer funds against fraud and abuse. Continue reading "FHA Guidelines? Why Are The Big Banks Abandoning Them?"