Eventually, the excessively high loan limits that FHA permits in high cost areas will subside, slowly but surely, which will incourage more privatized residential financing. With that comes less compliance/documentation/paperwork.
Clearly, a lot of those things are necessary to prevent a totally toxic portfolio, but the private sector is a little less militant when it comes to crossed T's and dotted I's. Anyone in the business now knows that some of the most minute issues can hold a loan up for weeks.
FHA Home-Financing Volume Sign of ‘Very Sick System' (Update2)
By Jody Shenn and John Gittelsohn
May 24 (Bloomberg) -- Loans guaranteed by the Federal Housing Administration, the U.S.-owned mortgage insurer, may be involved in more home-purchase transactions than borrowing financed by Fannie Mae and Freddie Mac.
FHA lending last quarter may have topped the combined volume of government-supported Fannie Mae and Freddie Mac in a home-lending market that's still a "government-financed market," David Stevens, the agency's head, said today at a conference in New York, citing research by consultant Potomac Partners.
"This is a market purely on life support, sustained by the federal government," he said at the Mortgage Bankers Association conference. "Having FHA do this much volume is a sign of a very sick system."
The FHA, which backs loans with down payments as low as 3.5 percent, insured $52.5 billion of home-purchase mortgages in the first quarter, compared with $46 billion of purchases of the debt by Fannie Mae and Freddie Mac, according to data compiled by Washington-based Potomac Partners.
The FHA and Fannie Mae and Freddie Mac, which regulators seized in 2008, have been financing more than 90 percent of U.S. home lending after a retreat by banks and the collapse of the market for mortgage bonds without government-backed guarantees
FULL ARTICLE HERE - http://www.bloomberg.com/apps/news?pid=20601206&sid=amJbN2aGCF84