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FHA Has Banner Year in 2008

by Peter G. Miller
October 14th, 2008

While much of the mortgage marketplace has been struggling if not comatose during the past year, official figures show that the FHA mortgage program enjoyed spectacular growth.

The federal government operates on the basis of fiscal years, periods which go from October 1st of one year to September 30th of the next. In the just-completed fiscal year — 2008 — the FHA mortgage program showed massive growth, except in the one area many borrowers and communities regard as the most important.

Applications

___ For the year, FHA received 2,008,157 single-family loan applications. That’s up 161.2 percent over the 768,770 applications received in fiscal 2007.

___ Of the total applications received, more than 90 percent were for existing home purchases or refinances.

___ By loan type, 977,550 borrowers wanted to purchase homes and 885,972 sought to refinances and 144,635 applicants wanted reverse mortgages.

___ Among those refinancing 147,992 applications were from current FHA borrowers seeking new FHA loans, 727,225 conventional borrowers smartly converted to FHA mortgages and 10,755 delinquent conventional borrowers sought FHA loans.

Not all applications resulted in loans, of course. To qualify for FHA financing both borrowers and properties must meet certain standards. The FHA actually made, or endorsed, the following loans:

Endorsements

___ During fiscal 2008 the FHA approved 1,199,624 mortgage applications. This number is up 125 percent from fiscal 2007 when the FHA agreed to insure 532,337 mortgages.

___ There were 631,667 loans made to individual purchasing homes, that’s up 126.9 percent over the 278,422 purchasers who got loans in fiscal 2007.

___ Among those financing a new home, 492,295 (77.9%)were first-time buyers. This figure reflects the traditional role of the FHA program as a promoter of homeownership expansion.

___ A total of 455,803 loans (38% of all loans insured by the FHA) were made for refinancing, a figure which rose a whopping 211.4% from fiscal 2007.

___ Many borrowers refinanced to get cash — HUD figures show that 166,475 borrowers (36.5% of those refinancing) walked away from closing with a check.

___ Borrowers continued to flee the private-sector loan market with 356,722 converting from conventional loans to FHA financing.

Delinquent Borrowers

Despite the food news above, a huge hole remains in the FHA program: It has been a total failure in terms of helping delinquent conventional borrowers, the folks facing foreclosure.

The FHASecure program was established specifically to help those with toxic loans.

“In the coming days,” said President Bush in August 2007, “the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we’re going to start reaching out and making sure people know that this option is available to them so they can stay in their homes.”

Well, it didn’t quite work out that way.

HUD thought it might help 5,000 delinquent conventional borrowers convert from toxic loans to bright-and-gleaming FHA mortgages. Amazingly, having set the bar at just-about zero, HUD failed to meet its own standard — and it failed badly. For fiscal 2008, just 3,794 delinquent conventional borrowers were able to refinance with FHA loans.

Had the FHA embarked on a serious effort to help American families avoid foreclosure far more homes could have been saved — and maybe a few banks and investors with them.

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