FHA defaults rising rapidly, fraud suspected

The Wall Street Journal reports today that 7.5 percent of FHA loans were "seriously delinquent" at the end of February, up from 6.2 percent a year earlier. If a loan is categorized as seriously delinquent, it means that it is 90 days or more overdue. But some of these loans are going into default after just one payment or without a single payment ever being made, so some suspect fraudulent lending activity.

FHA has become lender of last resort for people who used to be served by the subprime market before it collapsed. If you want a mortgage loan with a down payment of just 3.5 percent, FHA-guaranteed loans are your only option. And you likely will need to turn to an FHA-guaranteed loan if you have less than stellar credit. FHA doesn't actually lend money, it provides mortgage insurance to FHA-approved lenders. FHA's share of the mortgage market is now nearly one-third of all new loans, up from just two percent in 2006.