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The Big Banks have suddenly decided to move traditionally underserved borrowers into loans guaranteed by the Federal Housing Adminsitration (FHA).
For years, FHA lending made up only a small fraction of mortgage loans. One source quotes a Wells Fargo representative who says that FHA lending made up only three percent just a few years ago.
The main difference between FHA loans and conventional products is that there is a lower down payment requirement. FHA asks for a downpayment of at least 3.5 percent. Conventional loan terms fluctuate, but in the past year most borrowers have had to put up at least 20 percent in order to buy a home. For investors the number has been much higher.
In lockstep, Citigroup and JP Morgan Chase are putting foreclosures on hold. The hiatus is in force until March 6th.
Here's an excerpt of a letter from Jamie Dimon to Barney Frank, D-MA, and the House Financial Services Committee.
We will not add to the foreclosure process any new owner-occupied residential loans that are owned and serviced by JPMorgan Chase. This moratorium replicates the 90-day foreclosure freeze we announced on October 31, 2008. We believe three weeks is adequate time for the Treasury to announce – and for us to implement – a new plan.
The implication is that JPM is waiting for more specifics from Congress. This puts the onus squarely on the people in Washington, DC to come up with a solution.