FHA Loan Volume Soars In Tough Market

by Peter G. Miller
January 26th, 2009

It’s been a busy couple of days for distressed and distressing real estate news.

On the foreclosure front, RealtyTrac.com says 3,157,806 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 2,330,483 U.S. properties in 2008, an 81 percent increase when compared with 2007 and 225 percent higher than in 2006.

The National Association of Home Builders says that “single-family starts were down 40.5 percent for the year to 622,000 units, while multifamily starts were off by 8.8 percent to 282,000 units.”

“Builders continue to be in a de facto moratorium on building in hopes of getting this inventory level under control,” according to Sandy Dunn, NAHB’s chairman.

One result of such woeful housing news is that more and more people are turning to FHA mortgages. Until this point FHA loan growth has been widely assumed, but now we have real numbers from the Office of the Chief Economist at Freddie Mac.

To get some perspective of what’s going on consider these figures from Freddie Mac:

2005 — Loans worth $$3.167 trillion were originated, including VA and FHA mortgages worth $90 billion (2.84 percent of the total marketplace).

2006 — Loans worth $2.858 trillion were originated. The value of VA and FHA loan originations dropped to $80 billion (2.80 percent).

2007 — Loans worth $2.312 trillion were originated while VA and FHA mortgage originations amounted to $120 billion (5.19 percent)

2008 — Loans worth $1.490 trillion were originated — less than half the 2006 total. As to FHA and VA loans, they rose to $291 billion (19.53 percent — almost seven times the 2005 percentage).

The projection for 2009 is even more telling: Freddie Mac estimates that home loans valued at $1.560 trillion will be originated — but that FHA and VA financing will amount to $440 billion (28.21 percent).

What these numbers tell us is that both lenders and borrowers are running from so-called “non-traditional” loan products as quickly as they can and turning instead to mortgage programs which are reasonable and reliable.

The problem, of course, is that borrowers and lenders didn’t run sooner. Had the government used its existing regulatory power to dampen or eliminate “affordability” mortgage products and concepts (think of stated-income loan applications) we would not have the downturn we have today.

Meanwhile, savvy borrowers — and smart lenders — have been sticking with FHA loans, much to their advantage.

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