Is FHA the new Subprime Mortgage

It hasn't been too long since the 'Mortgage Meltdown' when the 'Foreclosure Crisis' started, so you will remember Subprime Loans. Luckily, we learned our lesson as a society and mortgage companies are issuing these products anymore, right?



WRONG, they still exist we changed their name to FHA loans. Nearly 1/3 of loans today are FHA loans, the new subprime.



Let's remeber the definition of Sub Prime - It simple means that the borrower did not qualify for the best rates & programs available. It is often confused with meaning exotic loan programs like Option Arms and Interest Only but those were simply programs available under the Sub Prime category.



FHA has lower standards for approval than conventional loans. It is not credit score driven (really it is, but we pretend it isn't - long story), qualifying ratios are much easier to achieve and it requires a very low downpayment (sometimes $0 in association with other programs). These are the exact criteria that defined Sub Prime. I should note that the exotic variations do not exist so we are in a little better shape.



There is one drastic difference between Sub Prime and FHA: FHA is provided by our benevolent government while Sub Prime was concocted by the rich bankers. This is important to remember. This time, if we have another meltdown, there will be no question that the taxpayers are funding the bailout.



Do I have something against FHA? Of course not. I recommend it to my clients, am likely to use it for my next purchase and believe it is an excellent alternative for certain people (just like Option Arms were good for a very few select people). I just want everyone to be aware that just because the names change, the underlying reality continues to exist.