Problem with FHA

Good article on FHA today in the WSJ. http://online.wsj.com/article/SB125202440174685297.html

The most telling line of this whole article was this, "Insurance from the New Deal-era agency has enabled lending to buyers who can't make a big down payment or who want to refinance but have little equity."

"Little equity" was what got us into this mess in the first place! Now, I agree we need to keep liquidity flowing into the housing market or we will get caught in a negative feedback loop leading to a frozen housing market. However, I believe if you can not afford a 20% downpayment, you probably can't and shouldn't be able to afford the house. Liquidity continues to be provided by Fannie and Freddie through conventional mortgages that require adequate amounts of equity from the buyer. FHA is just another way our society continues to subsidize higher real estate values from those who cannot afford a home. The other disturbing line from this article was showing how much they increased the caps on home values that qualify for FHA loans. Increasing the amount of first time homebuyers into the market by loosening FHA standards is not going to lead us to a healthy housing market in the long-term.