By Tyler King, Resident Hipster
During the unsure times of early 2009, when appraisers, lenders, investors, brokers, and developers all stood quivering in the rain, FHA backed mortgages rolled into town.Â It rode in on a mighty steed, promising nearly nothing down for buyers and unit sales for builders.Â I remember towards the end of the first quarter speaking with brokers in Williamsburg.Â All were marketing buildings that were actually selling units, and all had pending FHA approval. These buildings must not be confused with the buildings without pending FHA approval that were gearing up for bankruptcy.Â But what were the true implications of these FHA mortgages?Â This sugar-coated gumdrop of a plan on the surface appeared to be a blessing, but now watchful eyes are falling upon its sweet, sweet nectar (also known as closed sales in new condo developments in Brooklyn).
Let me briefly explain what an FHA backed mortgage is:Â Essentially, it allows a prospective buyer, even a so-so credit rated buyer to qualify for a mortgage that requires near nothing down.Â This means that pesky hurdle of saving-up your nickels and dimes for a few years to afford a down payment for the biggest purchase of oneâ€™s life is no longer an obstacle.Â Instead, you can wait for your security deposit from your current rental to come through and you can move into a brand new, stainless steel applianced, soaring ceilinged, bamboo floored condo in Brooklyn.Â Conventional banks give these loans to the prospective buyer because FHA (a.k.a. the federal government) guarantees against default.Â Buying an apartment is easy again!
Now why would this be a problem?Â I mean having a bunch of new homeownerâ€™s running around Brooklyn with no skin in the game wouldnâ€™t be a problem now would it?Â The way I see it, it sure is easy to walk away from an apartment when the value declines by 20% in the first year of ownership and you only have 3.5% of the skin in the game.Â It is kind of like not getting your deposit back because you scratched up the floor in your rental, but this time your are not getting your equity back on an apartment you never really purchased.