Latest FHA Results Present Mixed Picture

by Peter G. Miller
November 18th, 2008

The use of FHA mortgages is increasing at a phenomenal rate, something probably not seen since the FHA program began in the 1930s.

For the second two weeks of October, HUD reports that:

___99,197 would-be borrowers applied for FHA loans, up 79 percent over 2008.

___55,923 borrowers used FHA loans to purchase homes, a figure up 231.0 percent from last year.

___27,661 borrowers refinanced with FHA mortgages, an increase of 150.5% when compared with last year.

Meanwhile, in case anyone missed it, RealtyTrac.com reports that homeowners received 279,561 foreclosure filings in the month of October. That’s up 25 percent when compared with October 2007.

While foreclosure numbers are going through the roof — or they would go through the roof if more people had such things. HUD reports that during the last two weeks of October it refinanced 54 — FIFTY-FOUR — delinquent conventional borrowers, about one per state.

As for the Hope for Homeowners program, it too is a disgrace. HUD says that it received 111 H4H loan applications to date and has approved, well, er, um, NONE. Not one. Nada. Zilch. Zero. Goose egg.

The growth of the FHA program is hardly a surprise — where else can borrowers go? Option ARMs are gone, interest-only financing is dead, stated-income loan applications are finished, deals with no-money-down are history (except for VA financing) and a bunch of lenders are gone or going.

This is not to say that the FHA program has evaded the real world economics we all face.

HUD says that 260,366 FHA loans are delinquent as of September — that’s up 28.8 percent when compared with last year.

In a sense the race is on — more FHA endorsements but also more delinquencies. The good news, at least, is that the FHA has a generally strong record of helping troubled borrowers.

What’s also interesting is that government programs — essentially FHA and VA loans — have more than doubled their market share in the past year. The Mortgage Brokers 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.”

In a strange way, you could argue that the marketplace is returning to “normal” — normal in this case meaning sale levels and home prices that have not been hyped with fraudulent mortgages, predatory loan terms and fake loan applications.

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