The article discusses a significant rise in home mortgage defaults, largely attributed to relaxed underwriting standards initiated during the Obama administration. These changes allowed borrowers with high debt-to-income ratios to access FHA loans, increasing risk in the housing market. Despite rising home prices, defaults have surged, with many borrowers reported to have little financial reserve. The Biden administration's COVID relief efforts have further obscured the growing challenges, as they implemented measures to keep borrowers afloat, while delinquency rates continue to rise to levels more alarming than during the 2008 crisis.
The problems began when the Obama administration eased underwriting standards, allowing borrowers with debt payments exceeding 43% of their income to qualify for government-backed loans.
By 2020, 54% of new FHA borrowers had debt-to-income ratios above 43%, showing a significant increase in leveraged borrowers amidst climbing home prices.
Estimates suggest that 79% of FHA first-time borrowers have less than a month in financial reserves, leaving them vulnerable to payment misses during financial strain.
Remarkably, 7.05% of FHA mortgages issued last year were seriously delinquent within 12 months, surpassing the peak delinquency rate during the subprime crisis.
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