FHA Applications Down, Approvals Up

by Peter G. Miller
May 5th, 2010

In the world of government accounting the fiscal year starts October 1st and ends September 30th, a reality which means that half of “2010″ is over for the FHA and all other governmental agencies.

So how’s the FHA doing? Let’s look at some results:

Applications — down 19 percent.

By the end of March there had been 1,136,765 FHA mortgage applications, a big number but down from 1,405,620 during the same period in 2009. However, FHA loan applications are not down uniformly.

FHA refinancing is down 42.7 percent from 814,150 last year to 466,456 this year.

FHA purchase money mortgage activity is up 25.1 percent, from 505,922 to 633,075 this year.

Huh? How can loan activity in one mortgage program go in two directions?

The answer, I suspect, is that March 2010 is not too far from April 30, 2010 — and April 30th is when real estate contracts must be in to qualify for the first-time home buyer tax credit for as much as $8,000.

If this reasoning is correct, then we ought to see continuing strong originations in April — and then a decline….

On the matter of refinancing, the stiff FHA mortgage downturn is a reflection of the reality that claims the recession is behind us are simply not believable for a lot of Americans. If people had more faith in the financial system they would be willing to take on more debt, improve their homes and borrow for other purposes.

None of this is unexpected. In fact, HUD actually projects 2.5 million FHA loan applications this year — that’s down from 2.944 million actual applications in 2009. The way things are going, look for fewer than 2 million FHA applications this year.

Endosements — Up 7.8 percent

It’s good to have people applying for FHA loans but how many applications actually get funded?

Because there’s some overlap between application periods and loan closing the figures are not quite exact, however, for the first six months of the year the FHA had 633,00 purchase applications — and approved 550,000. In other words, about 13 percent of all purchase applications don’t make it through the system.

In terms of refinancing, the FHA had 466,000 applications and approved 339,000. That means 27 percent of the refinance application didn’t succeed.


I suspect in many cases that falling home values mean that owners have insufficient equity to get the cash they want from their homes, thus the high levels of failed refinancings.

Reverse Mortgages

Because of the economics posed by reverse mortgages — short effective loan terms (about 6 years on average) and declining home values nationwide — few private-sector insurers want to offer reverse mortgages. This means the FHA absolutely dominates the market — a market which is producing huge losses.

The good news here (for HUD, at least) is that home equity conversion mortgages — HECMs — are less popular. Applications are down 54 percent compared with last year and endorsements have fallen 21.8 percent. Given that interest rates are ridiculously low, the likely explanation for reduced HECM activity is, again, falling equity values which means far smaller reverse mortgage amounts.

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