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Thanks to the Federal Housing Administration (FHA), Foreclosure Cleanup Is a Great Biz Opp
The Federal Housing Administration’s (FHA) efforts to Americans obtain the dream of home ownership may actually be backfiring, ie, leading to more home foreclosures. While this is bad news for the economy as a whole, it’s great news for those in the foreclosure cleaning industry because it means more work – for years to come.
Why? Read on to learn more.
Home Loans: How Easy It Used to Be to Get a Mortgage
In order to understand how we’ve gotten to this point, we have to go back to the beginning. The home foreclosure crisis started in 2007 with subprime mortgages. As the economy worsened, it spread to those with conventional loans. But, I digress.
Before home foreclosure started to hit record highs a few years ago, it was relatively easy to get a home loan. I mean, really, anyone with a pulse could get one. I know, I was a mortgage consultant. At the time, there were so-called “exotic mortgage products like zero percent down home loans and 50-year mortgages available.
And credit standards were lax, very lax. For example, if you had credit score of just 580 (not good by any stretch of the imagination), you could qualify for a home loan with no money down, eg, 100% of the costs were covered.
This means you didn’t have to save for a down payment; no out of pocket costs (except for maybe a few hundred or a couple of thousand for closing costs). And, many times, these were picked up by lenders in order to just “push the home loan through.”
Again, I know, I was a mortgage consultant during this time.
Home Loans: How Home Loan Qualifications Have Changed
Fast forward to today. Many traditional home loan lenders (eg, banks) learned their lesson and tightened their lending guidelines. Nowadays, banks are (back to) requiring a 20% down payment and stellar credit to get a home loan (eg, credit scores in the 700s).
Gone are the exotic home loan packages where anyone with a pulse could get a mortgage.
The Federal Housing Administration’s Lending Guidelines that Have Paved the Way for More Home Foreclosures
Apparently though, until recently, the Federal Housing Administration (FHA) didn’t learn their lesson the way banks did early on in the foreclosure crisis. As late as 2008, the FHA was still insuring home loans of taken out by those with questionable credit (eg, 630 credit score) and nominal down payments (eg, 3.5%.
Critics argue that this has not only propped up the housing market artificially for the last few years, but it is also the leading cause of a “crush” of new home foreclosures coming down the pike. Proof?
About 9% of FHA borrowers have missed at least three payments (up from 6.5% a year ago (2009)), and experts say that means a new wave of home foreclosures is coming. [Source: 2/2/2010 MSN article, “New wave of foreclosure coming”]
By continuing to use lower home loan qualification standards, the types of buyers who bought homes backed by the FHA are have proven to be much more likely to default. And if this sounds familiar, you’re dead on.
This kind of lending* by the FHA (similar to subprime mortgage) is what led to the home foreclosure crisis back in 2007 According to the 2/2/2010 Washington Post article, “Rising FHA default rate foreshadows a crush of foreclosures”:
The problems are rooted in FHA mortgages made in 2007 and 2008. Those loans are now maturing into their worst years because failures most often occur two to three years after a mortgage is made.
So arguably, we’re just at the beginning of the “new” home foreclosure crisis. *Note: The FHA is not a lender, but it insures lenders when mortgages go sour.
Want to Capitalize on the Home Foreclosure Crisis?
Start a foreclosure cleanup business. It’s an ideal small business to start. Proof? According to Entrepreneur.com, a leading online site for small business owners, four Top 10 Fastest Growing Franchise Opportunities in 2009 were some type of cleaning company.
Furthermore, even when home foreclosures no longer top the news, a foreclosure cleaning company will still be a profitable enterprise because as long as real estate is bought and sold, it will need to be cleaned out, painted, repaired, boarded up and/or maintained. In short, all of the services a foreclosure clean up company provides.