Demise of the FHA as we know it?

Demise of the FHA as we know it?

I can't be the only one who has noticed the huge increase in FHA loan defaults lately. Probably about a 1/3 of all my latest short sales are FHA loans. This is a new phenomenon - at least here in CT. A year or two ago, it would have been rare for me to be working an FHA short sale, and nowadays they are my most common new case.

The good majority of these FHA loans were written in just the past few years, after other financing disappeared from the marketplace. Also a good portion of the defaults are on FHA streamline refies. The FHA streamline refinance has very few restrictions and requires NO APPRAISAL. So no matter how upside down you are, if you meet some basic FHA requirements, you can simply refinance anyway. If that's not begging for a default, I don't know what is.

Which of course leads me to wonder....How high exactly is the FHA default rate?

And how sustainable is this program in its current state?

With loose lending criteria and low down payments, I can't imagine FHA loan programs can survive as is for very much longer. Now, I don't believe the FHA mortgages will go away...However I do predict that with its growing default rate, the FHA will have to raise its costs and/or lending criteria significantly in the near future just to stay afloat.

So grab your cheap, easy FHA loans while they're still around, folks!

Just my 2 cents anyway...