Do you think they'd start to require bigger downpayments instead or in addition to those other options?

How long am I going to have to wait this thing out? I keep saving and holding out to buy a home, but I keep reading stuff like this. Another bailout? I'm moving from indignation to furious anger to hopelessness. Hey, all you idiots buying more home than you can afford, STOP IT.

Justine hits nail on head.

Especially by allowing tax credit to be used for downpayment, we have yet another group of no downpayment loans allowing "homeowners" to "move on up", with no skin in the game. This is a setup for more foreclosures down the road. Of course, this is great news in my opinion. We need many many more foreclosures and short sales to flush out the waste.

This is the last paragraph of the article:

"While most private lenders have raised lending standards and now require minimum 20% down payments, the share of borrowers who are able to make down payments of less than 10% hasn't changed in the last two years, largely because of the FHA, says Mr. Pinto, the former credit officer at Fannie Mae."

This burns me. Part of the original problem was that lending standards, including the down payment, were too low. The problem didn't get fixed. It just got moved to the federal government.

Perhaps "too little skin in the game" vs. "no skin in the game" would be a more judicious choice of words and correct a recycled policy.

"Buy gold, guns and move to Greenland. The sky is falling." - "Little Debbie"

nice

I knew this was going to happen. As soon as Fannie and Freddie made it difficult for the brokers to pick the compliant appraisers, they started making the loans FHA. All of the junk deals are still being done and the taxpayers will soon be paying for it. My appraiser friends tell me that HVCC has made very little change in the industry practices because of FHA.

Darwin Rules should acquire the facts before posting. HUD specifically prohibits the tax credit from being used for the statutory down payment.

Just as the shadow banking industry destroyed Fannie and Freddie, it will probably impact FHA as well. As long as this industry operates under the radar (or people keep turning away because they don't want to see or know what it going on) the country will continue to have financial problems.

FHA has more oversight of their product, so job issues will probably be more of a factor in the short term.

John In Bel Air:

You might be surprised that almost all of us who post on this blog are completely ignorant of the facts and data.

Anonymous blog posting demands stridency and inflammatory dogmatism. Be careful not to post a legitimate question: you will either be ignored or insulted.

"Buy guns, gold and move to Greenland. The sky is falling." -"Little Debbie"

Nice try Johnny. You certainly know that buyers can access their $8000 federal tax credit when closing on a home through a short-term bridge loan, that will cover their down payment on FHA backed loans, and that this trickery is what is being utilized to get around that big word "statuatory". No skin in the game. Jingle mail, jingle mail, jingle all the way.

John of Bel Air:

Technically, you are right: HUD still requires the initial 3.5% down to come from savings. However, they now allow the buyer to apply the credit to closing costs -- which can easily be another 3-4%. Thus, the buyer has to bring only 3.5% of the purchase price to the table, as opposed to about 7%.

Now, some may argue that the closing money could always be borrowed from family, so the borrower's "skin in the game" could by only 3.5% even without the new rule, but I don't buy this. I think that there is a big psychological difference between losing $8K of your parents' and siblings' money and $8K that Uncle Sam gave you "free". (Even though our grandchildren will still be paying for this "stimulus".)

What is really troubling is that loans continue to be made to people who can not pay. FHA insured loans are defaulting in the first few months of the loan. Former subprime mortgage brokers, who originated many of the so-called toxic loans are now originating FHA loans! Coincidence?
We need to get serious about underwriting loans and we need to stop the foreclosure deluge so property values can stabilize and allow qualified borrowers to safely borrow.
There is nothing shameful about renting until sure you can afford the responsibilities of ownership, and get qualified advice from a HUD approved housing counselor or real estate attorney before borrowing and buying..don't rely on someone who profits from your choices.
Robert J Strupp
Community Law Center

John Smith is right - the borrowers "skin in the game" could be only 3.5% if they apply the tax credit to closing costs.

Don't forget the 1.5% upfront PMI required for a FHA loan. If the borrower is short on cash and needs to take the $8k loan for closing costs, they will probably also finance that 1.5% into their mortgage principal. End result - borrower moves into the house with only 2% equity in the home (3.5% down - 1.5% upfront PMI).