The FHA’s Year of Plenty

by Peter G. Miller
October 19th, 2009

As a governmental agency, the FHA mortgage program operates from October 1st of one year to September 30th of the next — that’s the government’s “fiscal” year. Since we now have the final FHA figures for September we can see what’s really happened with the program.

First, FHA mortgage applications rose 63 percent as nearly 2.9 million people sought FHA mortgages.

Second, the FHA insured almost 1.95 million loans — a figure that was up 62.3 percent.

Third, the FHA reverse mortgage program rose 2.3 percent to 114,691 loans.


The FHA enjoyed a record year for applications, “forward” (traditional) mortgages and reverse loans. Whether such good luck will hold in 2010 is unclear.

The forward mortgage program and the reverse programs are plainly on different paths. The FHA reverse mortgage program — what HUD calls Home Equity Conversion Mortgages (HECMs) — is producing massive losses and the idea of record endorsements must pain HUD officials. What they want is a smaller reverse mortgage effort, something that will happen as a result of changes in the HECM program.

Meanwhile, the forward program is being attacked because FHA reserves are falling. If FHA reserves were falling and the private sector was doing great there might be some grounds for such criticism, but all lenders and mortgage insurers are plainly having problems.

As an example, Citigroup reported for the third quarter that efforts required by the federal government to modify troubled mortgages “contributed to the $2.0 billion sequential increase in loans 90+ days past due in the North America residential real estate lending business.” Citigroup, of course, received some $45 billion in bail-out cash from Uncle Sam as well as $306 billion in loan guarantees. Taxpayers now own 34 percent of the company.

The Future

What will happen with the housing market and FHA mortgage in general during the coming year is unknown. The Mortgage Bankers Association, however, has come out with several predictions which may suggest where the marketplace is headed:

___ Real GDP growth was negative in 2009, with the economy contracting by around 0.5 percent resulting from sharp drops in the first half of the year followed by growth in the second half. Growth is expected to be about three percent in 2010.

___ The unemployment rate will continue to increase from the current level of 9.8 percent to about 10 percent by the end of 2009 and peak at 10.2 percent in the second quarter of 2010, before declining slowly through 2011.

___ Fixed mortgage rates are expected to average about five percent in the fourth quarter of 2009 and increase to 5.6 percent by the end of 2010.

___ Total existing home sales for 2009 will end up about two percent higher than those for 2008. Existing home sales are projected to increase further in 2010, increasing by about 11.2 percent.

___ New home sales for 2009 will be down by about 18 percent relative to 2008.  Sales seemed to have bottomed in the first quarter of 2009 and have been rebounding modestly since. For all of 2010, new home sales should post an increase of about 21 percent from 2009’s very low levels.

___ National average home price declines should abate by early 2010, but will vary by state and home value. The demand will be highest for entry-level homes.

___ Purchase originations for 2009 will be $718 billion, about two percent below the 2008 level of $731 billion.  Purchase originations should rise about 12 percent in 2010, as existing home sales recover and home prices stabilize.

___ Refinance originations will end 2009 at $1.245 trillion, up about 60 percent from $777 billion in 2008. Refinance activity will likely decrease in 2010 to about $745 billion as mortgage rates increase.

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