For the past five months, roughly one out of every four home buyers in Orange County used a federally run loan insurance program that was practically nonexistent here two years ago.
Now home buyers are taking advantage of loans insured by the Federal Housing Administration. One reason: they can make a down payment as low as 3.5% and that can be gifted from a relative. Another reason: the limit was raised to nearly $730,000.
The chart (click on it for larger image) shows FHA market share of purchase loans per month — it was 24.2% in April, down a tad from 25.2% in March but nearly triple a year ago.
FHA has also taken off because brokers and lenders are pushing the program to consumers. When investors in 2007 stopped buying securities backed by mortgages with no government protections, lenders increased or switched to FHA loans and also began doing more loans that can be sold to Fannie Mae or Freddie Mac, which are both under federal receivership.
Under FHA, borrowers pay a fee, and those fees go into a pool which is used to compensate lenders if borrowers default. However, if the pool is inadequate to keep up with defaults, taxpayer money could be used to fill the gap.
I haven’t seen data on what percentage of Orange County purchase loans are being sold to Fannie or Freddie, but I would guess they are making up most of the other 75% of the market.
Our federal government is keeping Orange County’s housing market on life support. How long will this go on?
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