The Slowing World of Government Loans

by Peter G. Miller
September 14th, 2007

Speaking at the Five Star Default Servicing Conference in Dallas this week, Amy Crews Cutts, the deputy chief economist with Freddie Mac, gave a terrific presentation looking at the state of the mortgage finance.

Cutts argued that the foreclosure rate was bad today and likely to get worse. She said loans originated even in the first quarter of 2007 — surely a time when both lenders and borrowers should have known better — had significant foreclosure levels.

Cutts also looked at the falling use of government financing, meaning FHA and VA loans.

Figures presented by Cutts in the slide below showed that government loans represented 7.9 percent of the market in 2001 — but only 2.7 percent in 2006. The decline is substantial and yet not as entirely gruesome as the percentages might suggest. Here’s why:

In 2001 loans worth $2.2 trillion were originated. If 7.9 percent were government loans it means they had a value of $173.8 billion.

In 2002, the mortgage market expanded and loans worth $3 trillion were originated. Since government loans were 2.7 percent of the larger total, they were worth $81 billion.

Essentially, the market for government loans was cut in half over a five-year period. This is unfortunate when you consider that FHA and VA loans are vastly better mortgage products than many of the private-sector loans issued during the same period.

Fraud Statistics

The Five Star Default Servicing Conference and Expo attracted more than 2,000 attendees including lenders, servicers, investors, brokers, third-party buyers, attorneys and title companies. Some of the topics covered included loan fraud, broker price opinions, auctions and rating services.

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This entry was posted on Friday, September 14th, 2007 at 5:18 am and is filed under , . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

One Response to “The Slowing World of Government Loans”

  1. ForeclosurePulse Blog : The Shrinking World of Government Loans Says:

    [...] The Shrinking World of Government Loans posted by Rick In an interesting post on his excellent, informative FHA Mortgage Guide blog, author Peter Miller notes that, over a 5-year period, FHA and VA loans have basically lost half of their market share. While this may speak more to the nature of a loan market that approved virtually anyone, anywhere for any loan, anytime, it also suggests that those in the government responsible for managing programs intended to increase home ownership may not have been as proactive as they should have been over the past few years. Despite the fact that they’re not as sexy as “no doc, no talk, just walk” loans – all of which seem to be going into default now – VA and FHA loans tend to be much safer, and an all-around better alternative to the risky, toxic products that have been at the heart of the current foreclosure mess.   With President Bush proposing the FHA Secure program, hopes abound that some of these governmental programs will continue to help deserving families move into homes, and prevent some disenfranchised homeowners from losing theirs. [...]

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