Joe MacKay

Is the FHA Effectively Condoning Mortgage Fraud?

The charge from Congress for HUD and FHA is to increase home ownership in the USA. HUD and FHA are not and should not be profit making entities. For that portion of the population with earning power to accumulate significant reserves, this type of incentive is un-necessary as their needs are adequately served by the conforming market. Persons on the edge of that portion of our society are best served by a program like FHA which deals with several barriers to home ownership. Two income families are often two income families out of necessity. Often those two incomes can adequately provide for a family's needs, but allow little to no room for the ability to accumulate reserves (money in savings). Or families that have some crisis that is not of their making may fall behind and it is incredibly difficult to crawl back on top to accumulate such reserves. Perhaps it was a child's or other family illness or injury that was not adequately served by insurance if they had insurance. If the credit profile of such a borrower supports that they have regard for their obligations enough to justify the making a a loan, how are we served by eliminating their reserves and thus their ability to survive any financial crisis? The amount of monthly payment increase using a program like Nehemiah, in today's market, is $31.50 per month on a $150,000 home that would otherwise, under FHA, require a $4,500 down payment. Are we better served with that borrower exhausting their savings and being prey to any of the host of crisis that happen in everyday life or having the keep the funds in savings and make a payment that is $31.50 per month more that they would have otherwise?

FHA's charge is to help Americans by opening the gates to home ownership and to help those on the margin join the mainstream. That will not always be a seamless path. Some will fail. That is why FHA has instituted higher mortgage insurance for those most likely to fail effective July 14th of this year.

The other falacy is that appraisals are accurate. They are not. They are opinions. Appraisers at best can get close to the real value of a property, but none are so good as to be able to establish absolute value. So, it would not be uncommon for multiple appraisers to arrive at values for a property that could vary by 5% or more. If we are concerned that programs like the Nehemiah program increase home cost, I would make the case that they instead support home values by increasing the number of citizens who can purchase a home and thus help retard home price decreases.

FHA works.