BluefoxToday blog : Subprime home loans are back - Las Vegas mortgage borrowers go FHA

Subprime home loans are back - Las Vegas mortgage borrowers go FHA

Las Vegas home mortgagesMortgage loans that were labeled subprime just a few years ago were partly responsible for the notorious real estate bubble. When it burst and let all the air out, the subprime product quickly disappeared from the bloodied scene. Many housing observers warmed up their fingers over keyboards and wrote all these tearful obituaries, believing it would be gone for good. But guess what? It's now back.

This much-criticized mortgage segment has adopted a new backer, however. Subprime used to be pretty much exclusively conventional lenders' territory, until the recent thermonuclear event. With their exit a new player emerged to fill the void, Ginnie Mae, a wholly-owned government corporation created within HUD. Ginnie Mae is another adorable name in the mortgage arena, besides Fannie Mae and Freddie Mac.  

Ginnie Mae operates a little differently from its above-mentioned and better-known sister agencies. It guarantees investors timely payment of interest and principal on MBS, or mortgage-backed securities, supported by federally insured loans, meaning FHA, and federally guaranteed loans, in this case VA. The majority of its guarantees go to these two organizations. Ginnie Mae is not in the business of buying or selling loans or issuing MBS.

According to the Federal Reserve Bank of San Francisco, FHA mortgage lending has skyrocketed in the last several months, achieved with the Ginnie Mae's guarantees. In 2006 subprime paper accounted for about 20% of all home loans. Then its market share plunged to near zero and now it is climbing back up again. San Francisco Fed asserts that today mortgage borrowers nationwide with FICO scores under 660 command slightly over 20% of the market. In short, it's back to where it was only three years ago. That raises some eyebrows. And rightfully so.

FHA has flirted with trouble lately as mortgage loan losses are mounting. Sinking property values have a lot to do with this, as are the lenient underwriting guidelines FHA uses, in other words subprime lending, and the generally weak economy. As of right now it looks as if it doesn't need a government bailout, feared by many. If home prices stabilize soon across the board, it'll be safe.  

Las Vegas valley - including communities of Mountains Edge, Summerlin, Anthem, Henderson, Southern Highlands, Green Valley and North Las Vegas - has benefited greatly from FHA mortgages. Especially first-time home buyers have been using them and the nice tax credit to provide demand in an otherwise sluggish market. Without FHA the light at the end of the tunnel for Southern Nevada housing market would be just a tiny speck

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 10 commentsEsko Kiuru • October 29 2009 06:23PM

Comments

Hi Esko,

Thank you for sharing a very good article. You are right, subprime players moved to FHA financing.

John Pusa

Posted by John Pusa, Your All Time Realtor With Exceptional Service (Berkshire Hathaway Home Services Crest) almost 9 years ago

Esko, I understand FHA (not the loans the entity) does not like to think they are willing to be in the subprime business but we know the truth. The disgust for subprime by Fannie and her two siblings I think is indicative of a superiority complex and splitting hairs. That's why I titled my post a day or two ago "Are You Kidding Me?" I'm not sure which bothers me the most. That I doubt they learned any lessons or that after all the finger pointing and name calling, here we go again. Esko, my eyebrows are raised. Kate

Posted by Kate Kate almost 9 years ago

Esko, I understand how someone might feel that FHA is traveling down the subprime road, but I would have to disagree.

Three years ago we could do FHA with scores in the mid to low 500 FICO scores.  Today most investors will not purchase a FHA Loan with a FICO under 620.  That FICO score is about 100 points higher than three years ago.  Subprime Lenders had guidelines that were extremely lose, you could do a subprime loan if you were just one day out of bankruptcy, FHA is two years.  I could go on and on about the differences, but to me the bottom line is that FHA no where near what subprime use to be.

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) almost 9 years ago

John,

That's what the SF Fed in its report is pointing out.

Posted by Esko Kiuru almost 9 years ago

Kate,

FHA stepped into the void to give the market someone to work with, which is great, but at a certain risk we now are familiar with.

Posted by Esko Kiuru almost 9 years ago

George,

True, FHA guidelines today are tougher than what those subprime kings had way back then.

Posted by Esko Kiuru almost 9 years ago

Esko,

Could you point me to the SF Fed source that said "...mortgage borrowers nationwide with FICO scores under 660 command slightly over 20% of the market." I want to read more on this and possibly write about it as well.

Thanks,

Tim

Posted by Tim Manni almost 9 years ago

Tim,

This article appeared in Housingwire.com. Click the link on the blog and you'll be there.

Posted by Esko Kiuru almost 9 years ago

Esko, Seems to me this reporter took the figures and made an assumption based upon FICO scores.  You don't consider a score of 650 to be subprime, do you?  The problem in the past was that many borrowers who COULD have qualified for an FHA loan were sold subprime products instead because that's what their unexperienced loan originator knew.  They didn't 'know' FHA nor the benefits of this stable product.  They sold easy-money subprime, pay option ARMs, 2/28s, throw in a prepay to get an extra one back.  And why bother with paperwork, let's do stated and close quicker.  As you know, FHA has strict guidelines and requires the borrower to QUALIFY.  FHA has a long-standing record as a safe loan product to help our homebuyers.  They insult this product by linking it with subprime in their article.  My two cents....  'Figures lie and....liars figure'

Jana

Posted by Jana Holmstrup (Jana Holmstrup - CEO - Kings Mortgage Services, Inc.) almost 9 years ago

Jana,

Thanks for bringing another angle to the discussion.

Posted by Esko Kiuru almost 9 years ago

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