Is there Good News in the Bad News?

The FHA’s projected losses over 30 years could reach as high as $115 billion under a previously undisclosed “stress test” conducted last year to establish how the agency would survive under extremely severe economic circumstances. What does that mean for you and your buyers?
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In April, the White House’s budget office released an analysis which showed that the agency would require $943 million this year due to losses in its reverse-mortgage program. This allows homeowners who are 62 years or older to take cash out of their homes. The FHA’s main mortgage program hasn’t required taxpayer support in its 79 year history.

The predictions were significantly worse than the most dismal estimate included in the government mortgage-insurance agency’s independent actuarial review released last November. The FHA’s outside actuaries modeled the analysis along the lines of the annual stress test implemented by the Federal Reserve Board, which measures how the nation’s largest financial institutions would pan-out in the event of an economic jolt.

The findings are part of an investigation conducted by the House Oversight and Government Reform Committee. In a letter sent last month, a representative from the committee asked the FHA why the agency hadn’t disclosed the figure, calling the ordeal “troubling.” The FHA replied by stating that they are reviewing the matter and will respond appropriately.
Former agency officials defended the decision on the basis that the housing market was already recovering, making the more severe stress test less relevant.

So is there good news in the bad news?

The good news is that home prices are increasing, and the market seems to be stabilizing. However, with all-cash investors dominating the marketplace, smaller clients will continue to lose out to all-cash buyers. With a stabilized housing market within the foreseeable near-future, how will this dynamic play out? Do you need to learn how to speak “Chinese” to compete with foreign investors?

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