A landslide of FHA Fairbanks foreclosures are creeping up on us. Last month I read a riveting article on The Wall Street Journal website. The article stipulated that mortgage default rates were declining for nearly most loan types with the lone phenomenon being FHA types of financing. Those default rates had actually amplified.
Why you may ask? Well, when the market took a down turn the government put in place tax incentives for first time home buyers and tons of potential new buyers advanced on the market. Most of those buyers were cash poor therefore many were inclined to use Federal Housing Administration financing for the low down payment opportunities. And, in countless states, if a buyer used this financing there were incentives for $100 down payments. Several states still make available this program while others have abandoned it. My mind started to rattle when I began to think about what actually has unraveled over the past three years.
Here is my evaluation. During 2008-2010 the cash strapped buyers ran towards securing their piece of the American Dream: home ownership. Many of those buyers didn’t consider the likelihood that they may not have a place of employment in three years. While most were poised and ready and could actually afford the 3.5% down what they didn’t account for was that the economic system was going to continue to descend. And, most first time buyers that took advantage of the first time home buyer tax options are now in the unemployment line. They are defaulting at an unprecedented rate.
Additionally I understand that the government is going to elevate the down payment for FHA types of loans. This is really going to aggravate our industry. Federal Housing Administration financing was put in place to give a boost to first time home buyers when purchasing a dwelling by offering low down payments. Increasing the minimum down payment for these types of loans will put the home out of reach for many home buyers. It is truly a tragedy in the making. While one person’s tragedy is another man’s opportunity this will open many new sales options for real estate investors. In essence, less competition in the market place will prepare investors to come in and pick up great deals on homes.
I’m really not sure how all of this is going to shake out in the near future but I can swear to you that we are in uncharted territory. My best guess is that troubling times are to come. If the consumers that purchased homes between 2008-2010 and used fha financing continue defaulting there is going to be a tidal wave of FHA Fairbanks foreclosures coming on the market.
This will increase the inventory of HUD owned homes coming on the market place. I’m guessing HUD will slowly release these homes a little bit at a time as they will not be in any hurry to sell. If they did rush it then it would crash the market. So, look for HUD sales to be the new gold standard of the future. No doubt about it!
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