Mortgage 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