I agree with all of your comments except for the fact that I feel as if the monthly mortgage insurance percentage should be raised slightly to cover these losses.

I do feel that we need to educate the public more on FHA loans and its benefits and to also inform the public that these type of loans are not just for “poor or credit challenged” people.

Great job!!

Sincerely,

Paul Thompson
Home Mortgage Consultant
Wells Fargo Home Mortgage

Of course, until then, the real estate agents will need to shoulder that burden, even if it is only one consumer at a time that we can educate, one is better than zero.
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In markets like Philadelphia, where housing isn’t always the cheapest, I can see how making changes now could affect your area even more by pushing out those marginal buyers, who aren’t bad risks and will be great home owners, but are just on that borderline between renting and owning.

Thanks for the tweet.
.-= rerockstar´s last blog ..Realtor® Speak 101: Home Equity =-.

The premium is the simplest, most swallowable solution for buyers. The cost won’t kill them and the FHA can still raise more money to fill the reserves. Is it a perfect solution? Of course not. At this point, I don’t think anything is the perfect solution to a housing recovery.

Your last paragraph should be quoted everywhere there’s a discussion about FHA and the phrase “skin in the game.” I don’t think we can blame put all the blame on consumers being upside-down onto FHA loans. Conventional, sub-prime, FHA, VA – you name it. They all got caught up in a swift boom that left us hanging.

The interesting thing I find is that I know I will have this exact same conversation at least once in my real estate career. We’re a boom and bust industry and I doubt we will ever discontinue that cycle.

You raise some good points here. And I think that the unintended consequence of most of these options is that by cooling the FHA market, which will cool the housing market in general, the FHA would slow their own revenues… and that would decrease their reserves.

I think the only viable solution is the increase the premium slightly. As the market recovers (or WHEN the market recovers) there will be fewer foreclosures. This will allow the FHA to get back to their mandated minimums.

Further slowing the market will only push more people into strategic defaults… which will further erode the reserves of the FHA.

After the market recovers, I think that moving to 5% down and lowering the cap of seller contributions to the 5% area would be good ideas.

The problem we are facing now is that people that bought 2-3 years ago with 20% were STILL upside-down. Going from 3.5% to 5% down would not have given them “skin in the game”…

This post was mentioned on Twitter by rerockstar: All access to: An Open Letter To HUD About FHA Loans http://bit.ly/5R59SP #altos SA ^SA…

This is a superb letter. I agree totally that this is not the time to make these changes. If they can hold off for a year or two, that would be much better. By going to 95% LTV and only a 3 percent assist, that would have cut out many of the houses that sold to first time homebuyers in Philadelphia in the last 12 months. Many of these borrrowers have excellent job histories and credit scores, they just needed the low downpayment and the sellers assist to get that first home. Taking that away would be a big crunch. It is a tough period out there but the time to make these changes are not now.