Study shows current Obama proposal for FHA loan limits ineffective

George Washington University has released the June 2011 edition of the “FHA Assessment Report: The Role and Reform of the Federal Housing Administration in a Recovering U. S. Housing Market” which finds that the White House’s current proposal to reduce the higher end of FHA’s loan limits would have little to no impact on its current market share as the current loan limits are larger than what is necessary to serve FHA’s target demographic of first time and low/moderate income borrowers. The study asserts that Obama and his team must propose larger changes as FHA is phased out of its role as lender of last resort.

The study reveals that even if the maximum FHA loan limits were reduced by nearly 50%, they could still serve 95% of its “historic” target market and to continue serving this market, they only need to serve between nine to 15 percent of all mortgage origination as opposed to the current 30% share they are originating.

“FHA’s expansion played a major role in keeping the housing market afloat during the economic collapse of 2008 and 2009. However, we now are left with large loan limits that were set when home prices at the top of the bubble. They don’t reflect current market conditions and are unlikely to assist the FHA in reaching its historical constituencies—first-time, minority and low-income homebuyers,” said Dr. Robert Van Order, report co-author.

“We find that FHA’s current market share exceeds what is needed to serve these markets,” Dr. Van Order continued. “In the wake of significant declines in home prices, we believe the FHA could reduce its loan limits by approximately 50 percent and still almost entirely satisfy its target market. That would reduce its currently large market share, which is difficult for FHA to manage.” The report revealed that the current proposal only impacts three percent of all loans endorsed in 2010.

The Obama Administration and Congress are recommended by the George Washington University study to:

First Time Home Buyers Guide – FHA Loan Qualifications | Home Sales

Home ownership is something many people strive for but are unable to obtain because they have bad credit or are not able to meet the down payment requirements for many banks and financial institutes. The United States federal government helps many people every year become first time homeowners with the help of the Federal Housing Administration home loan program.

A FHA loan is a loan that is provided by the Federal Housing Administration. The FHA will insure and backup the loan holder. This backing allows banks and financial institutes to offer you better rates because they have a place that can guarantee that they will receive payment if you default.

The basic qualifications for an FHA loan is that the loan holder must have at least two years of steady employment history. The total household income should be steady or increasing over the past two to three years.

Credit history for an FHA loan is flexible allowing people with poor to okay credit to qualify. Credit history must include no more than two third day late payments in the past two years, and a credit score of 610 or higher.

There must also be two years between your loan application and your bankruptcy and foreclosures have to have happened and closed three years ago. However, with a foreclosure you are required to have perfect credit after that.

With an FHA loan the down payment can be as low as 3.5% of the asking price of the house. Closing and other costs can also be included in the loan.

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