Secret #47 – A Big Reason the Mortgage Industry Always Pushes for Higher-Foreclosure Mortgages
FHA covers 100% of mortgage industry principal losses from FHA mortgages. FHA pays 100% of the unpaid principal balance when a home owner defaults on an FHA mortgage. Because lenders take on less risk with FHA mortgage insurance, lenders make mortgages that are riskier for home buyers.
Since the real estate establishment doesn’t take those losses from those “affordable” higher-foreclosure mortgages, they will always push for higher-foreclosure mortgages and they will always say it’s to increase home ownership for lower-income households and people of color despite decades of failure of “affordable” mortgage policies to increase home ownership.
VA only covers up to 25% of the mortgage industry losses from VA mortgages. Even though many VA mortgages have $0 down payments, the VA foreclosure rate is often half of the rate with FHA mortgages, and the VA fee is a lot less than the FHA fee.
Apparently, when the mortgage industry has more skin in the game, they make safer mortgages on their own.
YES! Herein lies the problem of government participation in market-places. The risk is transferred to the public domain and absorbed by taxpayers. The cost is seen as… bum bum buuuuuuum… asset inflation.
Gambling is fun. Gambling with other people’s money is more funner. Especially when you don’t bear the consequences.
“Moral hazard refers to the tendency of individuals to engage in riskier behavior or make less effort to prevent losses when they are protected from the consequences of their actions…”