FHA Soars As Mortgage Market Falters

by Peter G. Miller
August 20th, 2008

While the trend should come as no surprise, the actual numbers are amazing:

The Mortgage Bankers Association reports that of the “mortgage applications accepted during the month of July 2008, 29.1 percent were for government-insured loans (consisting of mostly FHA loans) compared to 8.4 percent in July 2007.”

Given the demise of the subprime and Alt-A loan markets, and given the general decline in loan applications and originations during the past year, the FHA program remains the one viable mortgage option for borrowers with less than prime credit.

Application activity, according to the most-recent MBA figures, declined 36.9 percent compared with the same week one year earlier.

The MBA says that “the higher application and endorsement activity for government-insured loans highlights the need for FHA modernization.”

Actually, the huge increase in FHA activity suggests that no changes are needed and that the program is working fine as it. If that were not the case then surely FHA endorsements would have stayed level or fallen.

The MBA adds the following points:

*In March of this year, the Economic Stimulus Act of 2008 temporarily raised the FHA and conforming loan limits for most areas in the country, which broadened FHA financing for more borrowers. The passage of the Housing Bill in July 2008 made these higher loan limits permanent.

*Data from the U.S. Department of Housing and Urban Development (HUD) show that the level of conventional to FHA refinance applications has increased 317 percent on a year over year basis in July, the bulk of which is likely from subprime ARM products. Similarly, the level of conventional to FHA refinance endorsements has increased 260.8 percent on a year over year basis. Based on the MBA survey, application volume for government-insured loans was up 133.9 percent in July from a year ago, while application volume for conventional loans was down 50.2 percent, evidence of a shift from conventional to government-insured mortgages.

*FHA loans typically have lower down payments than those offered by Fannie Mae and Freddie Mac. Generally the maximum loan to value (LTV) ratio for FHA loans is 97 percent and 95 percent for the Government Sponsored Enterprises (GSEs).

*Conventional GSE loans typically have higher credit score requirements than FHA loans.

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This entry was posted on Wednesday, August 20th, 2008 at 3:38 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “FHA Soars As Mortgage Market Falters”

  1. John Skaggs Says:

    Peter, If the Stimulus Package had included the FHA Hecm program, the FHA loan volume would have been much bigger. The FHA reverse mortgage program was snubbed and now the FHA Reform Bill HR3221 which includes reverses is being delayed until possibly January 1st, 2009. Many seniors may not be able to take advantage of the higher loan limits offered because values are declining.

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