When the real estate market starting tanking and the eventual more restrictive conventional lending requirements came home to roost, borrowers, especially first timers, have found it much more difficult to obtain home mortgage financing. Enter the FHA…because of the risks now associated with home mortgages, and the conventional market’s reluctance to compete in the current economic climate, the Federal Housing Administration has become our fallback for loans. FHA has gone from funding three percent of all mortgages in 2006 to more than 40 percent today.

Although HUD is primarily known for its FHA low down-payment home loans, FHA has a home-improvement loan program, too, which has come in handy for folks who need cash and can’t get a home equity loan due to already high loan amounts or significant lower home values.  FHA Title One loans of up to $25,000 are available to owner occupants and investors who want to repair or improve their property. Up to $15,000 can be obtained regardless of home value. And, if you need $5,000 or less, no security is necessary. FHA also offers the very popular purchase-rehabilitation package known as the FHA 203K loan.

Originally, FHA was founded to make loans to a select number of people based on need and income but it has turned into a mainstream option. More loans mean more delinquencies and HUD now has its capital reserve ratio below the level that Congress mandates. Look around, the amount of HUD homes for Sale from delinquency is high across the country and is especially so when you compare the current delinquency rates with historical averages.

FHA should return to its role of helping low income families, not the general population, however, until non-government loans are easier to get…and that likely won’t happen for some time… the recession we find ourselves in with falling home values is likely to continue. HUD and the FHA have been trying to fill in the gap for conventional lenders who fell by the wayside, or otherwise decided the home loan market was too risky, however, this is not a long-term good solution nor was it ever intended.