FHA 2009 - What's Old is New

By Cari Campbell Crites

When the FHA was created, the housing industry was flat on its back: two million construction workers had lost their jobs, mortgage terms were difficult to meet for homebuyers seeking mortgages, loan amounts were limited to 50 percent of the property's market value, with a repayment schedule spread over three to five years and large a balloon payment. America was primarily a nation of renters. Only four in 10 households owned homes. During the 1940s, FHA programs helped finance military housing and homes for returning veterans and their families after the war. During the 1980's when home prices were falling steadily, FHA moved in and made it possible for potential homebuyers to get the financing they needed when the recession prompted private mortgage insurers to pull out of oil producing states.

Today, approaching 2009, private mortgage insurers are pulling out again. We've clearly experienced a return to the past. Bread-and-butter products such as FHA and VA are quickly becoming the only mortgage option for first time homebuyers. Ellie Mae, a provider of software and services for the mortgage industry, revealed that FHA loans now account for 35 percent of all monthly applications going through its Encompass Mortgage Management System.

More stringent underwriting procedures and requirements will continue to be implemented into 2009 eliminating more conventional loan options for the homebuyer. According to a Bloomberg.com article David Olson, the director of market research at Freddie Mac who now runs Wholesale Access Mortgage Research & Consulting Inc. in Columbia, Maryland said, "FHA has completely replaced subprime and Alt-A".

FHA will continue to replace prime conventional financing for borrowers with less than 15% down in 2009. It's clearly understandable why FHA loans have become the newest go-to product. With a low down payment, borrowers with FHA loans always pay the same upfront and monthly mortgage insurance rate regardless of their credit scores, which makes FHA the only choice for borrowers with credit scores under 700.

Basic FHA Changes 2009

Minimum Down Payment changed to 3.5%

New Loan Limits in Los Angeles and Orange Counties are:

• 1 unit $625,500
• 2 units $800,775
• 3 units $ 967,950
• 4 units $1,202,925

New Loan Limits for Ventura County

• 1 unit $598,000
• 2 units $765,550
• 3 units $925,350
• 4 units $1,161,050