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September 20th, 2009 — , , , , ,
On Friday the Federal Housing Administration Commissioner David Stevens . However, the commissioner also said that the 75 year old agency Is this remotely believable? Lets look at some datapoints.
First of all, the FHA doesn’t make loans. It simply insures lenders against losses on defaults. This means that if a loan defaults completely, then the FHA is on the hook to make the lender whole. The money it uses comes from mortgage insurance premiums that borrowers pay. The current rate is 1.75% of the loan amount upfront, and some additional monthly insurance on 30 year loans. The monthly mortgage insurance goes away when the borrower gains enough equity. When you add it all together the premium is less than 3% of the loan. The borrowers will need a minimum downpayment of only 3.5%, and they can borrow up to $729k in high cost areas. The problem with this whole scheme is that the lenders do not care if the FHA loses money because they will be compensated if things go wrong. Since private insurers, Fannie, and Freddie tightened up their lending guidelines, the new subprime loans are practically all going to the FHA. This has pushed the mortgage loan market share of in the second quarter of 2009.
Basically, the FHA has taken on a vast expansion, and with that expansion it has taken on a lot more risk. The 90+ late and foreclosure rate of FHA loans is now at 7.8% according to the Mortgage Bankers Association, and this is only expected to rise since those who take out FHA loans generally have very little downpayment, and their average credit scores are lower than the prime borrowers. Unemployment has not stopped rising and the economy isn’t totally recovered. The FHA currently insures about 5.2 million according to its website, and 7.8% means that about 405,000 of these loans are practically lost. Additionally, there are another 400 to 500k borrowers that have missed at least one payment. Since the value of the FHA reserve funds are going to fall below 2% of the value of the insured loans, it is hard to imagine how the agency would cover all the losses when they come due unless all the loans that defaulted have balances much much lower than the average loan. It is pretty simple math when you think about it.
I really do not see how the FHA could build up its reserve fund in two to three years when the foreclosure rate of the loans it is insuring is not exactly decreasing. The FHA is insuring many more loans than before, but those new loans are also defaulting and draining the reserve funds. You have to remember that the insurance premium is very small, so in many instances the FHA is using the premiums from 20 to 30 homes to repay the lender for one default. That is only sustainable if the default rate is very small, but a 30 day late rate of 17% is not exactly encouraging.
Anyway, the FHA does not expect to increase its insurance premium rates or downpayment limits, but it is requiring audits of the lenders that send loans to the FHA to prevent fraud. I would have thought that those audits were already happening, but I guess not. If the FHA really wants to decrease the amount of its defaults it would need to increase its downpayment limits so that people have more equity in their homes, but I don’t really see that happening. Eventually this agency is going to need a bailout. They may not call it a bailout, but I think it is pretty much inevitable unless the FHA changes course drastically.
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July 6th, 2009 — , ,
Well, in the last month my belly has really popped out and I am noticeably pregnant now. Many people have asked me if we are now looking for a new place to live for the coming of the baby, and the answer is a definite no. We just recently got a and renewed our lease at our current condo. Since so many people asked me whether or not I am moving it seems that people expect new parents to get a new place. However, is it really necessary to move a larger place for the sake of a new baby?
My husband and I already live in a two bedroom condo so if we wanted to give the baby his own room we could vacate our office, but I think it is pretty unnecessary. First of all, the baby is not going to be walking around right after he is born and he will spend most of his time sleeping. We have enough room in our bedroom for a good sized crib and we plan to just keep the baby in our room. Since the baby is going to need attention during the night so it seems silly to put him in a separate room. Most books I have read recommend that the baby sleep in the same room as the parents for at least a few months. I think that makes a lot of sense. Most babies do not start walking until they are almost one year old, and even then it seems that they do not need a whole bedroom to themselves.
Personally I did not really get my own room until I was in high school, and it was not really a big deal to me. Basically, I think it is kind of pointless to give the baby his own room because he will not be able to appreciate it until he is older anyway. I know that many expecting moms are into creating a beautiful and cute little nursery for their little ones, but I am really not into that. I think that is mostly for the enjoyment of the adults rather than the baby who is going to be half blind and sleeping 20 hours a day.
At this point we are not quite sure where we will be in a year or two. It is possible that we might move out of the area so there is no point in dealing with a move and the birth of a new baby. I think many people feel the need to get more space for a baby but in actuality they do not need the space since a baby is pretty tiny and immobile. Eventually the kid might get old enough to need his own bed and room, but it is going to take at least a couple years, and waiting to upgrade saves money.
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June 15th, 2009 — , , ,
Last year my husband and I bought my in-laws’ home down in Southern California, and so we have been homeowners for 7.5 months now officially. We have a really nice family living there now and for the most part things have been going smoothly, but there have been a few headaches that we’ve never encountered before.
First, the neighbors next door has completely neglected their backyard. This isn’t exactly something we could fix because we can’t just jump over their fence, pluck out all the weeds, and clean their green pool. I have contacted the public health department regarding their pool because you could see the green and brown slosh from SPACE via satellite photos and it can be a breeding ground for mosquitoes. I’m not sure if it got cleaned up yet but they did get a ticket from the county. They also have a couple psycho little dogs that barks day and night because they are probably not being fed.
Next, this weekend our home caretakers called us and told us that the water heater broke and it would cost over $1000 to replace it. The water heater is over 20 years old so I guess it was its time. It sprung a leak and damaged the garage’s wall a little bit, too. We had the money to replace it in our emergency fund, but it was still an unpleasant surprise. So I started researching a bit into our insurance policy and I read on the internet that this sort of thing is usually covered by home warranty policies.
I do vaguely remember that in escrow last year my inlaws purchased a one year warranty for us, so it is definitely still valid now, but I was at work so I couldn’t dig through my mountain of home-related paperwork to see what company held the policy. So I called the realtor that took care of the transaction and she told me right away what the warranty company was and the plan number.
I called the warranty company and our insurance company to see what we could do about it, and the warranty company said they would cover the water heater replacement and the insurance company said they would cover water damage on the drywall. The warranty company sent a plumber within 4 hours of my call and replaced the water heater, and they also checked out the drywall and said it is drying enough that it doesn’t need to be replaced. Both my hubby and I were very relieved because we didn’t want the family living there to be without hot water for a very long time. They have been showering in cold water for a couple days now.
It seems that my husband and I are the type of people who are unlucky (or lucky) enough to get the most out of insurances and warranties, so we are considering extending the home warranty when it expires considering that this time it did save us a bunch of money. So I guess the lesson here is to be aware what your home warranty and insurance covers and does not cover. If I hadn’t remembered that we had a warranty then we would have paid for the repair out of pocket. Also, another obvious point is that owning a home is a lot more trouble than just renting.
I definitely do not regret buying the home with the hubby, but I guess things like these make me realize how big of a responsibility it is. I think we are pretty both realistic about the fact that we will not make money from the house and we simply bought it to keep it in the family. I do see the house as a backup plan for possible high inflation because we are , and there is a possibility that we would move down there. So as stupid as it sounds, there is definitely a little bit of joy in knowing that after fifteen or so years we will own a piece of real estate free and clear.
Anyway, we are happy the current problem is fixed, and now we are more aware of what to do the next time something like this happens. I think when we were young our parents took care of a lot of things like these with their homes, and we did not even know or care that much. Live and learn I guess.
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November 24th, 2008 — , , ,
When I left for vacation I mentioned that we still haven’t closed on the house, yet. Well, on the day we left I got a call right before the plane was about to take off that said that our money was received and everything was fine. So now we are officially homedebtors.
Right now my in-laws are still living in the home and we will be visiting for the holidays and also my sister-in-law’s upcoming wedding. My in-laws won’t leave until next year and we are working on finding a caretaker who could keep the home occupied for at least a year. The caretaker will be responsible for the maintenance and any utilities they use. There are a few families that know my in-laws who are interested right now since it would be a good deal for them, but we are still going to have a formal application process to screen them. Since my in-laws may return after a year abroad the caretaker is just temporary.
We did not buy this home as owner-occupied/primary residence since we don’t intend to move down there for quite a while, and that raises a few issues. First of all, our homeowner’s insurance is simply Dwelling Fire, which means that nothing inside the home is protected. This is not a big deal since we are not living there. Second, if we do sell the home in the future we will have to pay capital gains taxes. In the past people could avoid this by moving into the home for two years, but the laws have changed so that starting from 2009 this isn’t the case anymore.
Overall, the situation isn’t that bad because we have 30% equity in the home right now based on a recent appraisal and the mortgage is 15% of our gross income. Since we already itemize on our taxes we can claim the mortgage interest deduction, and that cuts down the mortgage a bit more. We plan to keep the home for a very long time and possibly pass it onto our kids so I’m not too worried about the value going down a bit more. We are also planning to pay off the mortgage in 13 years instead of 30 by adding extra principal onto every payment, so we now have 155 more payments to go.
There is a possibility that we will move down there in a few years if the hubby gets the job he wants down there, and if that’s the case then we would have a nice house to live in.
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October 29th, 2008 — , , , , , , ,
I am leaving San Mateo for China first thing in the morning tomorrow. Sorry for the lack of updates but these couple weeks have been insanely busy for me. We actually still haven’t completely closed on the house because of a bunch of mix ups and confusion. Hopefully it will be done tomorrow, but I won’t be here to see it. That sounds pretty precarious and believe me, I have been pulling out my hair for about two days. I have also been trying to tie up loose ends at work and it has been two extremely chaotic weeks.
I am so glad that I will be leaving on a jetplane tomorrow because I just need to get away from this crazy country for a while and escape to another crazy country. We will be watching the presidential election through the filter of CCTV. The hubby already voted early on Saturday, so he is all set.
I will be back early morning of November 14th, but there will be an excellent guest post by in a couple days. Stay tuned!