New FHA profile evolves during 2010

by Peter G. Miller
November 1st, 2010

For the government fiscal 2010 ended September 30th, a benchmark which allows us to see how the FHA loan program compares with fiscal 2009. The results, as we shall see, may be surprising.

To start, credit scores remain enormously healthy, 699 in the latest FHA Outlook report, up from 689 a year ago. This is a very solid credit score, not the top of the heap (850) but far above any sensible notion of subprime.

FHA loan applications were off 19.2 percent. However, a closer look at the applications shows that purchase activity was about as flat as these things get: 1,256,565 purchase applications in 2010 versus 1,256,494 in 2009. However, while purchase applications were steady existing home sales declined. The National Association of Realtors says September existing home sales were off 19.1 percent from 2009. Such numbers suggest that FHA market share for home purchases has increased, news which will not thrill critics of the program.

While purchase money activity held steady, refinancing dropped by a third from 981,160 in 2010 from 1,472,023 in 2009. The most logical reason for this would be the erosion in home values. Since April 2007 — they’re down 13.6 percent. People who once might have refinanced to get additional cash from their properties are now refinancing to get better rates and owe less.

“In the third quarter of 2010,” says Freddie Mac, “33 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table.”

Freddie Mac explaines that “the main causes of the decline in cash-out refinancing were reduced home prices, tighter underwriting standards for loan-to-value ratios, and borrowers’ desire to pay down debt.”

While applications tell us how many attempts were made to get FHA financing, endorsements tell us how many loans were actually made.

The FHA reports that during fiscal 2010 it “endorsed 1,746,997 mortgages for insurance. They included 1,109,699 purchase money mortgages, 558,192 refinance transactions and 79,106 HECM’s. Four out of five of the purchase transactions were for first time home buyers. With respect to refinancing, 252,522 were former FHA mortgages, of which, 212,940 were streamline cases. In addition, 305,676 endorsements were conventional mortgages loans converting to FHA insured mortgages. Included in the refinance total were 107 H4H cases, all of which were formerly conventional cases.”

H4H — Hope for Homeowners — was the Bush-era program that was going to save large numbers of property owners from foreclosure. As you can guess, 107 happy borrowers is not much of a dent given that foreclosure filings have exceeded 300,000 per month for more than 19 months according to RealtyTrac.

If there’s good news from any of this it’s that the FHA program is solvent; that it has not received TARP money despite rumors to the contrary and that it remains a solid alternative for many of those who need to finance and refinance residential real estate.

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