Where is the FHA headed?

The FHA has a dilema on it's hands. Recently the FHA has been a huge player in insuring loans - as many as 20% of loans in the last few months. This is much different than in the early 2000's when they only insured 2%. Then, most borrowers bypassed the FHA and pursued sub-prime loans. Now that these have dried up, people are returning to the FHA loans for the financing they need. The problem is that default rates are climbing for FHA loans.

Now, the dilema, is that the FHA needs to tighten the qualifying rules to control defaults, at the same time they need to encourage lending to help the still unstable housing market. We'll have to wait to see how this unfolds.

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