A Few Facts For You… - Posted by JPiper
Posted by JPiper on April 20, 1999 at 15:03:27:
Sorry you viewed my post as a “flame”. My opinion was that your description of FHA loans was baseless and silly. My post was made to illustrate that. Note I said your description, not you personally?there is a distinction.
Just a few more comments. You’re evidently missing the point of my post. Originally the banking and building industries were quite supportive of the creation of FHA?..after all, they were prime beneficiaries at the time. Granted, the borrower benefits as well, but certainly NOT to the extent that the lenders or the builders do. Here’s some facts to consider.
When an FHA loan is made, the loan is insured by FHA. Because of this the lender is able to make a loan which requires a lower downpayment. First, the lender benefits because it is able to make a loan with little risk in a high LTV situation. This helps the lender to make a larger number of loans by far. Because of this, builders and homeowners are able to sell their homes more easily because money is more widely available to do so. Is there any wonder why the creation of FHA was approved by the banking and building industries? They were prime beneficiaries.
Does the borrower benefit? Of course?..but not without a price. FHA insurance is PAID for by the borrower. There are two levels of costs to the borrower. One is an upfront cost to the borrower in the amount of 2.25%. The other is a little more complicated, but basically amounts to .5% of the total loan amount charged annually and paid monthly with the mortgage payment. So the question I have for you is, as a taxpayer, how much do you think you’re paying for the borrowers ability to obtain an FHA loan through the FHA insurance plan?
So that you may contrast this with the conventional loan market, conventional loans where the LTV is above 80% require a monthly insurance premium, commonly referred to as PMI (private mortgage insurance) . There is NO upfront cost to this insurance. This PMI amount is even more complicated, and depends on the lender and what they have negotiated. But one example is again, no upfront cost for the insurance, but a monthly amount of .32% applied against the loan balance annually and charged monthly. This is for a loan at 85% LTV.
Another newer program available is the “Flex-97” program?.a conventional lookalike to FHA loans. Here the PMI is .5% of the loan amount annually and paid monthly?..hmmmm remarkably similar to FHA. The lender also charges 1 ½ points additional upfront for this loan?.again, less than the 2.25% upfront fee paid in the case of FHA.
So it appears that the insurance feature of FHA is actually MORE costly than the insurance available through private insurers of conventional loans. The point here is that the borrower is paying for insurance, and that the insurance rate equals or exceeds that of conventional loans.
So coming back to your statement “FHA loans are a form of government welfare to shiftless, undeserving whiners who write their Congressmen instead of bettering themselves. But I digress…”, that was not the original purpose of FHA as outlined in my prior posts, and as you can see, this “governmental welfare” is paid for by the borrower at rates comparable to private mortgage insurance rates, if not higher. The prime beneficiaries of FHA are the banks and building industries?my original point.
So enlighten me?.where exactly do you come up with the statement of “To put it bluntly this person is stealing from me to finance buying a house.”??? It’s clear that the borrower is paying for insurance at rates equal or higher than private mortgage insurance rates. The only “culprit” left is the PRIME beneficiary of FHA, the lender making the loan and builder selling his houses. Are these the parties you’re calling “shiftless and undeserving”??
Frankly my guess is that your knowledge regarding FHA is deficient. Perhaps you should check out the program, get some facts, and then comment when you’re more fully informed.