Last month I reviewed an interesting article on The Wall Street Journal website. The article stated that mortgage default rates were dipping for nearly all loan types with the one exception being FHA types of financing. Those default rates had actually amplified over the past year.

Why you may ask? Well, when the market crashed the government enacted tax incenttives for first time homebuyers and plenty of potential new buyers inundated the market. Most of those consumers were cash strapped therefore most were encouraged to use Federal Housing Admininstration financing for the low down payment opportunities. And, in plenty of states, if a buyer used this financing there were incentives for $100 down payments. Many states still make available this program while others have abandoned it. My mind began to rattle when I began to think about what actually has transpired over the past several years.

Here is my evaluation. During 2008-2010 the cash strapped buyers ran towards acquiring their piece of the american dream: home ownership. Most of those buyers did not consider the probability that they may not have a job in three years. While many were poised and ready and could actually afford the three and a half percent down what they didn't account for was that the national economy was going to continue to backslide. And, many buyers that took advantage of the 1st time home buyer tax opportunity are now in the unemployment line. They are defaulting at an unprescedented rate.

Also I have heard that the government is going to increase the down payment for FHA types of loans. This is really going to break our industry. Federal Housing Administration financing was put in place to assist first time home buyers when purchasing a home by offering low down payments. Raising the minimum down payment for these types of loans will put the home out of reach for nearly all home buyers. It is truly a catastrophe in the making. While one person's disaster is another man's opportunity this will open many new sales options for real estate investors. Essentially, less competition in the market place will empower investors to rush in and pick up awesome deals on homes.

I'm really not sure how all of this is going to wash out in the near future but I can assure you that we are in uncharted waters. My best answer is that troubling times are . If the first time homebuyers that purchased homes between 2008-2010 and used fha financing continue defaulting there is going to be a heavy sea of FHA foreclosures coming on the market. This will increase the inventory of HUD owned homes coming on the market place. I'm guessing HUD will slowly offer these homes a little bit at a time as they won't be in any hurry to liquidate. IF they did rush it then it would crash the market. So, look for HUD sales to be the new gold standard of the future. No uncertainty about it!