A step backward for affordable homeownership?

by Dan Krell © 2009

In a press release circulated on Monday, November 30, the FHA announced new proposed rules to “Strengthen Risk Management.” The proposed changes include increasing financial worth of FHA lenders, tighten underwriting requirements for borrowers, and require FHA lenders to take on the liability for the loans they originate.

FHA has a history of providing low down payment mortgages to millions of home owners since 1934. FHA sparked the resurgence of a very flat housing industry when it was created by providing affordable mortgages with acceptable terms at a time when mortgages had very stringent underwriting guidelines as well as very harsh terms. . FHA has played a major role in subsequent recessions and housing downturns to help stabilize the marketplace by assisting cash strapped home buyers purchase their first home.

FHA’s role in the housing industry has undoubtedly increased the value of homeownership by making homeownership affordable. Unfortunately, it seems as if FHA is another victim of the financial crisis as it no doubt suffered losses by bailing out troubled home owners through such programs as HOPE for Homeowners.

In a time when home buyer sentiment is wavering, increasing financial and credit requirements for potential home buyers will further diminish the value of homeownership. Increased financial and credit requirements in a time when recessionary forces have already reduced home buyer resources will undoubtedly affect the recovering real estate market and shift the consequences of the financial crisis to many potential home buyers by making home ownership less affordable.

This article is not intended to provide nor should it be relied upon for legal and financial advice.