Colorado FHA and HUD

Posted by Angela Lanfranco

May 22, 2009

Colorado FHA Mortgages

Trouble Ahead for HUD

As Colorado homebuyers examine their options for home loans and apply for financing in Denver and throughout the state, they may look into federal loans as an alternative to private lenders. Indeed, following the meltdown of the subprime mortgage market, the Federal Housing Administration has increased its market share from 3% in 2006 to 30%. But can its resources and dated systems sustain this explosive growth? Policymakers both inside and outside of the FHA have expressed concern that the FHA’s programs are overtaxed and vulnerable.

The FHA is self-funding, using mortgage insurance premiums to generate its operational budget and to settle defaulted home loans. A slight tip in the balance caused by an unexpected increase in defaults could easily drain all reserves, a contingency which could be especially troublesome since the FHA’s market share is so large.

In a dismal economic climate where unemployment is relatively high, it is no surprise that the FHA has stated that default-related losses and foreclosures are indeed exceeding projections. The rapid increase in volume of loans granted also may correspond to a higher likelihood of fraud, as some critics have pointed out.

The FHA does not sufficiently investigate the backgrounds of the lenders whom it licenses. Therefore, those who misused the system by selling the illegitimate subprime loans may be able to misuse FHA licensing even further. Between 2004 and 2006 alone, over 6,000 FHA home loans were foreclosed in Colorado, well before the subprime market fell through. The problems were exacerbated by a number of HUD programs specifically created to skew the true feasibility of the home sale.

It is no wonder that the FHA would struggle to keep pace in doing due diligence in investigating recipients of licenses: the number of licensed lenders increased from 16,000 to 36,000 between the summer of 2007 and the fall of 2008. Leading up to and during this growth spurt, the size of the FHA staff has stayed approximately constant.

Admittedly, the requisites for FHA loans have always been less stringent than for private lender loans. However, its leniency is likely to become increasingly burdensome. And the FHA is no private lender: if its costs exceed the revenues generated, its expenses will become the burden of taxpayers.

At Golden Lenders, we beleive in helping you secure government options for home lending! Contact us today for a free consultation about what we can assist you with for your next Colorado Home Loan.

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