FHA insured loans have stepped in to fill the giant void left by the collapse in low to nothing down mortgage products. A low down payment is problematic for a variety of reasons and as we will show in data presented below, is a creature of the housing bubble and nothing standard to a healthy housing market. Low down payments through FHA insured loans are financing a tremendous amount of current home purchasing but this is not necessarily a positive given that default rates are surging for FHA insured loans. For example, in California of the active FHA loans over 9 percent are delinquent. This is not exactly a positive figure. Yet this is the number one mortgage product for first time home buyers. A bailout for the FHA is very likely given the ongoing issues with low down payment mortgage options. Contrary to what some will say, FHA insured loans have become a big player in the market because of stagnant household wages and the difficulty for households to scour up any savings.
FHA steps in to fill in hunger for low down payments
The trend towards low down payment products accelerated in the late 1990s on par with the repeal of Glass-Steagall:
Source: Ed Pinto
Initially the low down (and eventually the nothing down products) were financially dubious inventions from the financial sector. When the mortgage market imploded and the financial sector was melting down, FHA insured loans stepped in to finance the weak balance sheets of households: (more)
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