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January 21st, 2010 9:09 AM by David W. Welch
I really am amazed at the complete lack of reason at FHA, Fannie Mae and Freddie Mac. Last year they made condo financing impossible and tightened all their guidelines making it more difficult to obtain financing. Keep in mind the government was giving hundreds of billions of dollars to banks to improve their liquidity so they could make loans. The Fed also slashed their interest rate to zero, and began pumping hundreds of billions more dollars into the economy to prime the lending pump. Also, Congress passed the first time home buyer tax credit, then extended it, then extended and expanded it again. So, Congress and The Fed are pumping hundreds of billions of dollars into a system clogged by the very entities that are supposed to be facilitating lending.
Last year FHA was successful in outlawing the practice that allowed sellers to contribute money for the buyer's downpayment, they raised the amount of money buyers have to put down and the implemented the use of credit scores as a lending criteria. Now FHA wants to require people with credit scores below 580 to put 10% down instead of the 3.5% down required right now. They also want to reduce the amount of closing cost assistance to 3% of the purchase price from the current allowable 6%. I don't think these are necessarily bad ideas. I do believe the timing is wrong, and I believe they are contradictory to the other programs in place to stimulate demand for real estate. FHA has long been a program designed to help first time home buyers, and increasing the cash requirement makes purchasing more difficult for first timers. Don't make loans to people that are too risky, but if you don't take some risks you won't make any loans.
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