McCombs Alumni Network News

From McCombs TODAY

By Sandy Leeds, senior finance lecturer at McCombs

FHA – Future Chaos. The FHA does not lend money directly to homebuyers. It provides insurance. The FHA’s share of the mortgage market was 2% three years ago. Now, it’s almost a third of all mortgages. The FHA has become the only option for homebuyers who don’t have a downpayment or good credit. (Of course, another option is called an apartment.)

The FHA lets lenders conduct business in their own way. The FHA does require lenders to document borrowers’ income. The FHA also requires that borrowers have a downpayment and live in their homes (Pretty stringent, eh?)

In the past two years, more than 9,200 FHA insured loans have gone into default after either no or one payment. During the past year, the number of borrowers who defaulted after one payment has tripled. The FHA allows cash‐out refinancing. The number of refinanced deals that default after zero or one payment has quadrupled. This is 40% of all instant defaults.

For more of Leeds’ commentary and analysis, sign up to receive his weekly Market Update by sending your e-mail address to sandy.leeds@mccombs.utexas.edu.

Hear more from Sandy Leeds on March 27, 2009 at the 4th Annual Alumni Business Conference as he shares “30 Quick Thoughts: Learning From the Real World.” Register today.