FHA Taking Steps to Deal With Volume Increase

by Heindrick So
October 27th, 2008

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It’s no secret that FHA loans are emerging in the mortgage industry as the go-to option for homeowners around the nation. With the decline in credit options, FHA loans have seen quite an upsurge in popularity; expected to represent more than a third of all U.S. borrowers by the end of this year. There’s been growing support for FHA, and changing guidelines have shown that FHA is no longer outdated even in high-cost areas.

Last week, the popular loan originating software Encompass stated that FHA loans now account for 35% of their monthly applications, compared to 11% in July of 2007. And beginning earlier this month, the Hope For Homeowners program was initiated to address the housing problems we are facing today. With all this in mind, FHA is here to stay and expected to grow. Earlier this month, I asked the question, “Is The FHA Ready For You?” Well, I’m guessing most people threw away their crystal balls late last year, but signs are showing that the FHA is taking steps to deal with the tremendous reception it has received lately.

Loan Originating Software Shifting Towards FHA Loans
As credit tightens, many originators are turning to FHA loans these days, despite the fact that many of them didn’t specialize or focus in FHA in the past. With the improvements in originating software, several aspects of FHA have been incorporated to deal with the recent upsurge in FHA interest. FHA loans are a different breed of loans-composed of different guidelines and processing methods. Fortunately, the recent improvements in originating software makes this transition much more streamlined and allows more lenders to address the need for FHA. Some of these improvements incorporate the FHA county limits and mortgage insurance tables which help save time and improve accuracy of mortgage applications.

Industry Support for FHA Lender’s Technology
The technology industry has also showed their support for FHA, as IBM introduced outsourcing loan fulfillment capabilities for the Federal Housing Administration. In their statement, IBM will offer a turnkey approach to address FHA volume without disrupting current lending operations. Along with these services, their technology will also be used to help mitigate fraud risk, improve loan quality, reduce processing costs, improve automation, and help lenders adapt these necessary changes in business models.

Why is FHA So Popular?
If you’ve been wondering why FHA has gotten so much attention recently, part of it is due to the recent credit crisis and lack of lending availability. However, FHA also provides down payment options as low as 3% and allows low credit borrowers to still qualify. For more information, you can visit our “What is FHA” summary which covers the basics of an FHA loan and many of the required guidelines. Since guidelines can vary depending on where you live, be sure to contact an FHA lender in your area to get the most up to date answers.

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