Expert: FHA should means-test new insured loans

Loan modifications, particularly those insured by the Federal Housing Administration, are subject to means testing — meaning modifications are intended to go to lower-income borrowers who most need the assistance.

Industry observer and respected academic Anthony Sanders wonders aloud why the same isn't done for actual lending at the FHA:

At the end of Bush Administration in 2008, I visited the Department of Treasury to discuss mortgage refinancing programs in areas that had suffered dramatic declines in house prices, such as California, Arizona, Nevada and Florida. A member of the Obama transition team from HUD said “Any loan modification should be means-test (that is, income-tested). We don’t want rich people getting mortgage reductions.”

Fair enough.

But then why do we allow “wealthy” individuals to qualify for FHA-insured loans which are primarily for first-time homebuyers? Remember, taxpayers are on the hook for FHA-insured loans gone bad. So we really should be returning the FHA to its mandate.

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