Latest FHA Outlook Report - Slight Decline in Purchase and Refinance Transactions

by Heindrick So
December 8th, 2008

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The latest FHA Outlook report has been released for the first two weeks of November, and the data showed a decline in overall FHA transactions. FHA applications fell by 12.9%, purchases declined by 28.1%, and refinances declined by 13.4%. In total, the number of FHA endorsements fell by 23.6% when compared to the last two weeks of October.

Here are the numbers as reported by HUD for November 1-15 2008:

	2 WEEK PERIOD	LAST PERIOD	RATE OF CHANGE	LAST YEAR	RATE OF CHANGE

TOTAL APPLICATIONS: *	86,442	99,197	-12.9%	54,240	59.4%
TOTAL ENDORSEMENTS: *	67,818	88,784	-23.6%	29,922	126.6%
Purchase	40,203	55,923	-28.1%	14,773	172.1%
Refinanced	23,947	27,661	-13.4%	11,184	114.1%
HECM	3,668	5,200	-29.5%	3,965	-7.5%

– Per the data, there were 40,203 FHA purchases and 23,947 FHA refinances. Of the FHA refinance transactions, 8,183 were cash out transactions.

– The average FICO score for all FHA endorsements rose to 683 when compared to last year’s average of 650. For purchases and refinance transactions, the average FICO score was 693 and 662 respectively.

– The average processing time remained stabled at 9.5 weeks from application to endorsement. [Application to Closing: 5.6 weeks & Closing to Endorsement: 3.9 weeks]

One interesting piece of data was the significant increase in AUS decisions made for these FHA loans. AUS stands for Automated Underwriting System, and is used by HUD to evaluate the credit risk of FHA borrowers. Something worth noting is that the AUS system does not take into account a borrower’s residual income or “real life” cash flow.

While credit and DTI ratios are of significant importance, gauging one’s actual ability to afford a home is often ignored by any type of automatic system. Day to day living expenses such as food, transportation costs, utilities, child care, education costs, and entertainment expenses are not typically factored into these automated systems.

As a result, borrowers and potential buyers should always consider these expenses when considering the payment of a home. Although FHA lenders verify revolving credit accounts and income verification, it can often overlook expenses that don’t show up on one’s credit report. Finding a responsible mortgage originator can help point out the small details, and help you avoid getting trapped in a mortgage you can’t afford.

For the full FHA outlook report, you can find it on the HUD website here.

*If you missed the previous report, you can find the summary of October’s FHA statistics here.

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