Some of these answers are befuddling. An 80-10-10 is a loan where the purchaser puts 10% down. How is an FHA loan BETTER than a 10% down 80-10-10 in terms of affordibility for the purchaser or quality for the lender? It is infinitely more difficult to qualify for an 80-10-10 if they are available than it is to qualify for an FHA loan.
For the borrower, the division of the loans into two trusts allows for greater flexibility, no m/i and a much lower monthly payment and interest savings. The math is very simple if anyone wants me to walk you through it.
The reason most banks don't offer them anymore is because the second trust lender is in subordinate position to the first. With declining markets, the collateral would be dry not long after closing. In chapter 13 bankruptcy situations, subordinate leins above and beyond a 100% the value of the home are "stripped" and are no longer secured by the house. Much too risky in declining markets for the yields on generally smaller loans.
We offer 80-10-10 in our area but only for the cream of the crop borrower. The maximum debt ratio is 40% while FHA can go up to 56.99% with aus approval. The minimum credit score is 740 while FHA is 640. FHA requires zero reserves while a minimum of 6 months is required for 80-10-10.
FHA has always been a more "dangerous" loan than 80-10-10 except for when lenders were doing the 80-10-10 with no income verifications. Still, that has to do with underwriting as opposed to structure. The bottom line is that if you put hard satistics together with distressed rates comparing fixed 80-10-10 and FHA loans, FHA loans present a much greater percentage of default.
We are not in this mess BECAUSE of 80-10-10's. Most banks don't offer 80-10-10 because we are in this mess. Big Diffference.