Every time the HUD makes a change or looks at its financial stability, the question arises: Should the government really be involved in homes and loans? Some members of Congress would like to see the FHA taken out of the HUD and put into the private sector.
For years, the HUD’s “government housing” options, specifically FHA loans, were perceived as problematic and heavily wrapped in red tape. But the HUD has stepped up – by trying programs that the private sector hasn’t been ready to digest, and by introducing and standing by the country’s most popular reverse mortgage products.
In 2009, when money was tight and jumbo loans became incredibly difficult to find, the FHA became the safety valve for many mortgage brokers. Some lenders report that FHA loans make up nearly 40 percent of their business – nearly double the volume of the past five years combined.
While the dark side of the agency has surfaced periodically over time (there have been allegations that some programs were labeled “inept, detrimental and costly” by the Office of Inspector General/OIG), the HUD and other government agencies have been a critical part of the public housing landscape.
The HUD believes that if the FHA went private, borrowers would be charged higher fees and interest rates than the FHA charges, resulting in fewer home ownership options. In addition, the sale of the FHA to private owners would not attract buyers offering a reasonable price.
The FHA insures loans so that if the borrower defaults, the lender is guaranteed to receive the outstanding mortgage amount. For the past 75 years, an FHA loan has been the primary low down-payment option for home buyers.
The FHA also has a home-improvement loan program, too, which has come in handy for those in need of cash and unable to get a home equity loan due to already high loan amounts or slumping home values. FHA Title 1 loans of up to $25,000 are available to owner occupants and investors who want to repair or improve their property. Up to $15,000 can be obtained regardless of the home value, and if you need $5,000 or less, no security is necessary.
A prime traditional FHA target – first-time homebuyers – are pushing the housing ladder. Many of them are new to this country, and analysts believe that the immigrants hold the keys not only to the residential building industry but also to the economy. That’s because many newcomers pay cash, reducing the concerns of escalating consumer debt, except in big-ticket purchases like homes. Therefore, the HUD is the critical player at both ends of the housing finance ladder – first-time loans and reverse mortgages.
In 2009, the agency showed that it was the go-to player for all loans in between. It now has more than 5.2 million insured single-family mortgages and 13,000 insured multi-family projects in its portfolio.