July 10, 2012 by Leave a comment

Recently the FHA released its Single Family Outlook for May 2012.  There’s quite a bit of good information in the report, none of which really constitutes a stand-alone blog post, so this is more of a round-up of some of the various FHA data points (it’s a pretty slow news day).

  • Currently the FHA has approximately 7.6 million loans, with a total balance of $1.1 trillion.
  • FHA applications increased by 4.5% from May 2011 to May 2012, mostly likely as a result of record low mortgage rates as well as the continued tight credit conditions that make it difficult for many people to obtain a loan through traditional sources.
  • Despite the year-over-year increase, FHA applications dipped by more than 20% from April to May.
  • There was a steep drop in FHA refinances from April to May.  Refinances were down by over 44%.  Much of this is a result of investors curtailing FHA streamlines.  Many investors are now restricting streamline refinancing to loans they originated or loans where they already own the servicing rights.
  • FHA endorsements increased by 4.6% from April 2012 to May 2012, again this is likely the result of the current low rate environment.
  • The average FICO score of an FHA borrower over the past four months is 699.  The average FICO score for those refinancing has hit record highs the past four months (708, 710, 712, and 711).
  • The serious delinquency rate (90+ days delinquent) on FHA loans stayed the same from April to May, at 9.4%.  The number of seriously delinquent loans is up considerably (23.2%) from last year.
  • Despite the continued high delinquency rate, the number of single family claims paid out is down from last year 21.4% from the same period last year.
  • The FHA Short Refinance program continues to be a bust.  There were 204 short refis applications in May, down from 249 in April.  Only 107 short refinances were actually completed in May.

I do question the forward viability of the FHA (without a bailout) given the increase in the seriously delinquent loan rate.  Seriously delinquent loans tend to become defaults without some sort of work out, and I don’t think the FHA is about to engage in some sort of principal reduction program.  The report doesn’t specify, but I would be very curious to know how many of the delinquent loans are of a recent vintage.  Given that the minimum FHA downpayment is 3.5% of the total amount of the loan, it doesn’t take a large movement in home prices to totally wipe out any equity that the borrowers may have.

This is a situation that definitely bears monitoring.  Since the housing collapse, the FHA’s market share has ballooned in a way that I do not think was ever really anticipated.  The FHA has become a particularly important source of financing for first time home buyers (due to the low downpayment requirement and tight credit conditions at traditional lenders).

 


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