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Government Loans Double Market Share

by Peter G. Miller
November 6th, 2008

The Mortgage Bankers Association is reporting a huge increase in FHA market share.

The Association says “the government share of originations more than doubled to 11.8 percent in the first half of 2008 compared to 5.7 percent in the second half of 2007. The government loans category includes loans guaranteed or insured by the Department of Veterans Affairs, the Federal Housing Administration and Rural Housing Service. The increase in the FHA loan limit, which broadened FHA financing for more borrowers, was one of the factors that contributed to the increased popularity of the FHA.”

The increase in federally-insured loan programs should hardly come as a surprise. The subprime, Alt-A and even the prime market have been impacted by the liquidity crisis, the failure of many lenders and the termination of many so-called “affordability” mortgage programs.

Alternatively, private-sector loans are being made — they represent 88.2 percent of all loan originations. But the loans being made today are objectively better than the junk seen during the past few years because lenders are requiring documentation and dropping option ARMs, interest-only mortgages and other forms of toxic loans.

FHA mortgages make sense because they have no prepayment penalties, no absurd payment increases and sane application requirements. In essence, the private-sector is moving toward the FHA loan model.

Other findings from the MBA include:

___The refinance share of all originations was 61.7 percent in the first half of 2008, compared to 54.8 percent in the second half of 2007. The percent of refinance originations for rate or term purposes increased from 38.1 percent in the second half of 2007 to 48.6 percent in the first half of 2008. The refinance volume also increased 5.8 percent in the first half of 2008, based on data from repeater companies, which are participants that responded to the survey in both halves.

___For first mortgages, fixed-rate loans, excluding interest-only loans, accounted for 78.5 percent of the dollar volume of originated loans in the first half of 2008, compared to 63.6 percent in the second half of 2007.

___In the first half of 2008, 82.7 percent of all origination dollars were for prime loans, compared to 79.0 percent in the second half of 2007, 3.8 percent were non-prime, compared to 7.5 percent in the second half of 2007, and 1.7 percent were Alt-A, compared to 7.8 percent in the second half of 2007.

___Originations of mortgages with deferred amortization (“interest only” or “IO”) continued to decrease significantly for both fixed and adjustable rate products from the second half of 2007. IOs accounted for 10.6 percent of originations in the first half of 2008, compared to 22.4 percent in the second half of 2007.

___In the first half of 2008, first-time homebuyer purchases represented 29.9 percent of the volume of purchase originations, compared to 27.9 percent in the second half of 2007. They represented 32.2 percent of the number of purchase loans in the first half of 2008, compared to 30.2 percent in the second half of 2007.

___Estimates from MBA’s Mortgage Finance Forecast further demonstrate the trends in originations as purchase originations were down by 16.2 percent in the first half of 2008 compared to the second half of 2007. Refinance originations were up 16.3 percent in the first half of 2008 compared to the second half of 2007.

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