FHA-Backed Loans: The New Subprime

Open to all applicants, it allows small down payments—as little as 3%—and lenient standards on borrower income, as long as mortgage and related expenses don't exceed 31% of household earnings....

That statement of the article matches up with my FHA experience when I bought my first home.  There was a lot of extra verification of income, debts, and the property to get an FHA mortgage.  Thus, even though the brokers involved may be shady, I would expect the loan officers to perform due diligence, especially in this environment.

I suspect the article may be fear mongering.  I hope I am right.  FHA, based on my experience, is a great program that works like it was intended to work.

The trick with FHA is that it has always offered the same loans, it has never asserted a greater or lesser amount of risk.  I dont know why after all these years it would all the sudden implode beyond the fact that many are going unemployed and wont be able to pay on their FHA loans, as would be typical in any recession.  Low down payments are really only risky to those at risk of losing their job, in the early half of the loan repayment.  If FHA gets hit really bad its only because the circumstances outside the program are really bad as well.  I do suspect the article is instilling a greater amount of fear at this point just because we are in unusual times where things are happening, perhaps thought at one time to be beyond belief.  

If people were asked a year ago how we would be doing, im sure many were more scared of the unknown that the reality that has happened thus far.  Institutions have failed and the credit markets got squeezed as feared but incredibly, we are still here and not in a great depression.  I dont think there will be an all out implosion.  There is also a huge difference between the subprime meltdown created by ARM and the vetted FHA.  FHA is a fixed program and does not subject less than ideal borrowers to ballooning payments.