Delinquency Drop Shows Impact of FHA Measures

Post by Ken Grech, a top Simi Valley real estate agent. Search Simi Valley real estate listings. American Banker, By Sara Lepro and Kate Berry:

In a surprise reversal, the delinquency rate on single-family mortgages insured by the Federal Housing Administration has fallen in each of the last three months amid record volume.

Stable housing prices and higher-quality loans are aiding the agency’s recovery, though FHA Commissioner David Stevens cautioned that the mortgage market is still on federal life support.

“Let’s be real – it’s still a government-financed market,” Stevens told a group of industry executives Monday at a Mortgage Bankers Association conference in New York. “We have a lot of work to do to get the capital markets back to a sustainable level.”

Citing a study by Campbell Communications, a Washington research firm, Stevens also said the FHA backed more single-family mortgages than Fannie Mae and Freddie Mac purchased or guaranteed in the first quarter of this year.

The FHA is on track to guarantee 1.9 million loans this fiscal year, the same as in the one that ended Sept. 30, which was up from 1.1 million a year earlier.

For FHA to handle so much volume “is a sign of a very sick market,” Stevens said. “Unfortunately, I don’t think that’s going to be changing anytime soon.”

These days FHA loans are nearly the only product lenders can offer borrowers who have little money for a down payment (and the Department of Veterans Affairs and the Department of Agriculture’s Rural Housing Service serve only their respective niches). FHA lending now accounts for 30% of all residential mortgages written, up from 3% in 2006, said Brian Chappelle, a partner at the Washington consulting firm Potomac Partners and a former official with the Department of Housing and Urban Development.

In recent years higher volume and market share came at a stiff price: higher defaults and losses. An audit released in November showed that in the fiscal year that ended Sept. 30, the FHA’s capital reserve ratio had fallen to 0.53%, well below the congressionally mandated minimum of 2%.

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