FHA numbers turn down despite low rates

by Peter G. Miller
March 23rd, 2011

February turned out to be a woeful month for the FHA, despite interest rates which hovered around five percent.

Comparing February 2011 with the same period in 2010, figures from HUD show a distinct FHA mortgage slowdown.

  1. Applications: Down 30.9 percent.
  2. Endorsements: Down 33.1 percent.
  3. Purchase money mortgages: Down 35.8 percent.
  4. Refinances: Down 33.6 percent.

HUD has also run into problems with its much-touted FHA reverse mortgage “SAVER” product. Apparently it’s tough to give this one away: There were 6,092 standard reverse mortgages insured during the month versus just 296 for the Saver.

There are some reasons why FHA numbers might be down.

First, February was a tough month on the weather front. A lot of areas got pounded with deep snow and high winds, not the best time to look at houses or plunk down offers to buy.

Second, unemployment continues to be remarkably high. Official figures show that nonfarm payroll employment increased by 192,000 in February, and the unemployment
rate was little changed at 8.9 percent, according to the Bureau of Labor Statistics. While the unemployment rate has dipped in terms of percentages, the important point is that millions of Americans remain unemployed, underemployed and nervous about job prospects, all reasons to avoid major financial decisions such as the purchase or refinancing of a home.

“The number of job losers and persons who completed temporary jobs, at 8.3 million, continued to trend down in February and has fallen by 1.2 million over the past 12 months,” said the BLS.

Well, really, could not the government come up with a better word than losers?

Delinquencies

For February there were 619,712 seriously-delinquent FHA loan borrowers. That’s an 8.9 percent delinquency rate for folks who are at least 90-days behind. The “good news” is that the rate a year ago was 9.5 percent.

The catch is that while the percentage has declined, the absolute number of delinquent loans has increased from 570,799 last year to 619,712 this February.

In other words, the delinquency percentage is down not because we have fewer borrowers making late payments or no payments but because the universe of loans is growing faster than the number of delinquent borrowers.

To its credit, the FHA has done an unusually good job converting delinquencies to paying loans. However, when you have an additional 48,913 delinquent loans you also have a large number of additional chances for claims against the system.

There is at least one group which should be elated at the decline in FHA loans: Private-sector lenders have been screaming about the need for more, well, private sector loans. The latest FHA results should make the private sector very happy.

Whether it will also make borrowers happy is a different question. What is it, exactly, that private-sector lenders are offering which is better than an FHA mortgage? Less down? Lower rates? Lower mortgage insurance costs? A high cure rate for defaults?

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This entry was posted on Wednesday, March 23rd, 2011 at 12:36 am and is filed under . You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.

One Response to “FHA numbers turn down despite low rates”

  1. s2kreno Says:

    Tried to get my parents to do a Saver reverse mortgage. It would cost next to nothing to set up a credit line. Then they could use their retirement savings first and have the other ready to use only if they need it. That way they could enjoy life a bit more now without worrying about running out of money. They are still thinking about it but I think it’s a great product for contingencies.

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