FHA loan originations are plunging because high borrowing costs turn off potential buyers, and risks of put-backs make lenders reluctant.
The biggest barrier to first-time homebuyers is saving for a down payment. As a result, most first-time homebuyers turn to the FHA because the FHA only requires 3.5% down, but as everyone who's gone down that road also quickly learns, FHA financing is expensive; in fact, FHA financing is so expensive, it's like taking out a 12.4% second mortgage! Many have quipped that FHA has become the replacement for subprime. They have very low standards for qualification (a 580 FICO score), a very low down payment requirement (currently 3.5%), and as a result, they stepped into the void left by the collapse of subprime lending. Under direction from politicians to save the housing market, the FHA ignored the real cost of mortgage risk for years as[READ MORE]