FHA has lowered their criteria making it easier for folks with credit scores down into the 400s (Yikes!) to get a home loan.

This means fewer renters.

And for those who have been in this game for a while- more foreclosures coming soon.

The more you know...

BRAD

I don't know anything about bubbles (except the tiny bubbles in my beer that make me happy and full of cheer!)...

But 400 credit scores? Wow!

Shortage of inventory? Possibly. Not much building going on in the "starter home" category in my town. Might be time to unload some of my lesser performing units at top dollar.

Crash? Pop? Maybe. Doesn't seem to be any speculation like we had last time, but then again who here saw the last one coming before it hit and it was too late?

Alrighty!!!! the 400 credit score buyer, NOW owner will be ok UNTIL theres a problem with making payments. DUE to their excellent money management skills ar 400 credit score...

...NOT

They will run from the house when they get into financial trouble. Just like they ran from the rental they owed money to as well.

Oh yeah! easy to get a loan and easy to run when they get into financial trouble.

Brad, I researched this and the only thing I saw was that the lowest score they would accept is 500. At that level, your downpayment and interest rates are more. Still, that's a pretty low score and most of us wouldn't accept a tenant with that low of a score. When this thing unravels, the burden will be shifted to taxpayers.

I think this is effectively a continuation of the bank bailout. The government's objective is to undergird the market for SFH's as was the case with FNMA and GNMA before they went bust. Their loan limit is pretty high at $ 600,000. There must remain a shadow inventory that must be worked off.

FYI This info came for an article posted yesterday based on a 2017 study of FHA loans by the national Assoc of Realtors.

Here's a link

thinkrealty.com/fha-loans-lower-credit-approvals/?utm_source=NewsBrief&utm_medium=Email&utm_campaign=SiteTraffic&utm_content=News&j=740905&sfmc_sub=42623154&l=15889_HTML&u=24907421&mid=7230230&jb=0

From Brad's article--

"FHA lending is leading the way toward more lenient credit standards according to the report. First-time buyers who made home purchases between January and March of 2018 had an average credit score of 672. In 2011, buyers who made purchases during the first quarter of that year had an average credit score of 701. The FHA is also permitting higher debt-to-income (DTI) ratios lately. The ratios include monthly household debts on credit cards, auto loans, and personal loans exceeding 50 percent. Five years ago, by comparison, only about three in every 25 FHA borrowers had DTI ratios that high.

"Other entities like Fannie Mae and Freddie Mac are not easing their underwriting standards, why is the FHA easing up? The reason may be at the center of many present housing discussions: housing affordability. Millions of “would-be” buyers have found themselves unable to become homeowners in the wake of the mid-2000s housing crash, according to a study from the Urban Institute (UI)’s Housing Finance Policy Center. In fact, those researchers estimated that 5.2 million mortgages are “missing” just between 2009 and 2014. Those mortgages would have been made if the lenders in question had not stuck to post-recession credit criteria.

"The FHA’s new leniency could be a move to lower the barrier on homeownership. This is especially true for new homeowners such as millennial and generation Z households, who were not old enough to make home purchases during the housing crisis."

The conclusion is oddly jarring against what precedes it. It's almost like they were looking for a warm, cuddly, "there's no way this can go wrong!" kind of way to wrap up the article. :)

Aren't Millennials and Generation Z households already (for the most part) swimming in student loan debt? (Hint: 62% of Millennials owe more in debt than they have in savings. [Not that that's a hard thing to do!] 24% have more in savings than they owe in debt. [Which is actually pretty impressive.])

Each time the governments wisdom is to lower lending standards, there is a back lash. From 1990 through 1997 prices of single family home dropped 40%. This was due to variable interest rates that kept on climbing -- from 7% to 16%.

Then from 2007 to 2011, single family homes dropped 50% due to liar loans, interest only loans, stated loans, pay as you go loans and teaser rate loans.....

Each time the governments wisdom is to lower lending standards, there is a back lash. From 1990 through 1997 prices of single family home dropped 40%. This was due to variable interest rates that kept on climbing -- from 7% to 16%.

Then from 2007 to 2011, single family homes dropped 50% due to liar loans, interest only loans, stated loans, pay as you go loans and teaser rate loans.....

It was also interesting that they said "Millions of “would-be” buyers have found themselves unable to become homeowners in the wake of the mid-2000s housing crash..." when a housing crash was probably the easiest time to find an affordable house, if your finances were solid!

I remember the Community Reinvestment Act was in 1995. The repeal of Glass-Steagal was in 2000. The subprime mortgage crisis ran from about 2007-2010. So I don't know if foreclosures will start to accumulate quite as soon as 2022... but surely the people who are making these decisions were awake during the 90's and the 00's.

So, if they have credit scores in the 400 or 500 range basically the only thing they have proven is that they ignore their bills as they come in. Now we think it's a great idea to give these same people homes possibly with guaranteed debt likely into the hundreds of thousands of dollars? Sounds like a real recipe for another guaranteed disaster.

I'm not seeing it, mortgages at least on the properties I deal with are well underwritten.