Your home equity is the appraised value remaining in your home after you subtract the remaining balance you owe on your existing home mortgage(s). It can be thought of as the part of the home you actually own instead of the bank: the part you’ve paid for so far.

 

It isn’t difficult to build equity in your home, and chances are if you’ve owned your home for a while and have been making your regular mortgage payments, you probably have built a considerable amount of home equity already. Though the housing market rises and falls in cycles, the overall tendency is consistently upward. In other words, property values tend to rise over the long term.

The Federal Housing Administration (FHA) does not directly make loans to borrowers but rather provides insurance on loans made by approved lenders. FHA-insured mortgages can be obtained for single-family, multi-family, manufactured and mobile homes, and hospitals.

 

The FHA was created in 1934 by congress to help Americans to obtain a mortgage and purchase a home. Until the FHA came into being around 60% of Americans rented their homes, and most mortgages had high monthly payments, short loan terms, and stringent approval requirements. In 1965, it became part of the U.S. Department of Housing & Urban Development (HUD).

 

FHA loans differ from conventional loans in a number of ways. The down payment required for a conventional loan is typically much higher than for an FHA-insured loan. FHA loans also have lower credit requirements than conventional loans, making them more available to a wider range of potential homebuyers.

 

FHA loans offer borrowers several other valuable benefits, not least of which is those aforementioned smaller down payments. Unlike a conventional loan, which ordinarily requires 10-20% down, FHA-insured loans only require down payments as low as 3-5%. The FHA is also more flexible in calculating factors to determine whether or not to approve the loan, factors such as household income and repayment ratios. 

These days that's been the more prevailing question over whether subprime lending will return and, as it would happen, the answer to both questions are related. Many prognosticators assert that the worst of it is still ahead of us. Others believe the tide is turning.

But all agree that if we do have a recession, it will be in part due to the subprime mortgage crisis, and that we would not emerge from either a recession or the subprime mortgage crisis until and unless we emerged from both.

That is why so many people in finance and government are working to try and pull us out of this subprime mortgage crisis so that we can better avoid a recession.

Recession or no recession, a couple of things seem certain, though. Housing prices aren't likely to rise until prospective homeowners can start qualifying for less risky and expensive mortgages. And the tide of foreclosures isn't likely to ebb until people can afford to meet their current loan agreements. Both of these situations require an increase and improvement in employment and a tight leash on inflation.

Who knows if subprime lending will return? Not us. But together we can take an educated guess.

The common sense answer to the question of whether or not subprime lending will return is "Of course it will". Housing (including home lending) is cyclical, and all things cyclical ebb and tide, fade out and return.

As with securities and other forms of investment, the waxing and waning popularity of various loan instruments is most heavily dependent upon demand. The money is there to lend. The only question is how to lend it.

A lender with no borrowers is no lender at all. To stay in business, a lender has to offer instruments that have lending criteria which borrowers can actually meet. Otherwise, with no qualified borrowers, it can't do what it's in business to do - make loans.

All this is to say that as long as there is a demand for subprime loans, subprime lending will eventually be made available.