Condominium prices are rising and pressure is increasing on the Federal Housing Administration. The FHA is being pressured by realtors and mortgagees to guarantee or backstop with taxpayer money, what amount to subprime mortgages. It is said that the FHA guarantee will enable people to buy condominiums who cannot afford them now. See Kenneth R. Harney, "FHA Squeezing Loans for Condos Despite Surging Demand" (Los Angeles Times Online, posted Sunday, November 9, 2014).
But is it really a good thing for the borrowers whose condominium units will be foreclosed when they can no longer pay the mortgage? And is it the kind of public policy we really want to put in place, to guarantee and likely pay for those mortgages with your tax money?
The realtors and mortgagees think so. For example, a former head of the FHA changed his mind apparently since he left his post as Commissioner of the FHA. Now he is the head of the Mortgage Bankers Association and his views have changed. There is no reason for restrictions now, it seems, that the foreclosure crisis "has abated, as at present." (To be fair, these are apparently not the Mortgage Banker's words, at least not a direct quote, but words written by the reporter on the story to finish what the Mortgage Banker was saying about disappearing foreclosure problems.)
Who told you that "the crisis has abated, as at present"? Probably not someone in foreclosure, at present.
There is a second set of mortgages that realtors and mortgagees and other investors want to insure with money from the Federal Treasury. The article mentions that the COO of "ReadySetLoan" is among those who want the FHA to guarantee the purchase of reverse mortgages by seniors, also.
Why do you think it would be a good idea to put your mom or dad, or someone else's mom or dad, or any of your clients or customers, into a reverse mortgage, and then backstop default with money provided by the Federal Government, so that investors and others can be paid?
It seems that we have seen this movie, as they say. Perhaps most recently in about 2008? There may and undoubtedly are better ways to spend the guarantees that amount to Federal Housing Insurance paid for by you and by me.
Dennis Wall is writing a book on the topic of residential mortgage contracts and lender force-placed insurance. It is scheduled for publication by the American Bar Association in the Spring of 2015.
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