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Unformatted text preview: of authorization from Congress halted funding under this program for short periods during 1986. California is part of Region IX headquartered in San Francisco. In addition to the San Francisco headquarters, there are HUD field offices located in Los Angeles, Fresno, Sacramento, San Diego and Santa Ana. MAJOR LOAN REFORMS
In addition to the introduction of mortgage insurance, FHA also introduced major loan reforms. Higher Loan–to–Value ratios – Prior to FHA, the loans on property were usually based on 50 to 60 percent of the sales price. FHA raised the loan– to–value ratio to 80 percent of value, a very high ratio for that time. Many lenders also had objections to the high loan–to–value ratio, saying that the investment was not covered by sufficient value even though the loan was insured for 100 percent. Fully Amortized Mortgages – Before the formation of FHA, most mortgages were like balloon mortgages, with all of the principal due at the term of the mortgage. In some cases, the mortgages were interest only
Dynasty School (www.dynastySchool.com) 5-21 REAL ESTATE FINANCE
with the interest payment due annually, and the full amount of principal due at the end of the term. The life of the mortgage prior to FHA was as little as three years, but FHA extended the term of the mortgages to as long as twenty years, with the payments due on a monthly basis. These payments were level payments. Each monthly payment was the same; only the amount applied to principal and interest changed. Lower down payments – The advent of the higher loan–to–value ratio meant a lower down payment to the homebuyer and thus made housing available to more of the general public. Lower interest rates – In keeping with the investment policy that the lower the risk the lower the return, the FHA loan usually has a lower interest rate than the conventional loan. The reason is that the lender is protected from loss by the FHA insurance. Escrow accounts – Prior to the FHA–insured loan, the person receiving the loan was responsible for seeing that all taxes were paid on time and that there was insurance on the property. As with most people, they did not make allowances for th...
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This note was uploaded on 12/30/2010 for the course SOC 101 taught by Professor Zhung during the Spring '10 term at Punjab Engineering College.
- Spring '10