Both Foreclosure House Rate and FHA Loan Rate Increased
The percentage of FHA-guaranteed homes which ultimately went into foreclosure house listings in June increased to 1.76 percent compared to 1.6 percent in June last year. The delinquency rate for FHA home loans also increased, climbing up from 5.57 percent in June last year to 6.88 percent in June this year.
Meanwhile, the percentage of FHA-guaranteed home loans has increased during the 11-month period from October last year to the middle of August this year to 23 percent of all new mortgages issued nationwide.
During the 11-month period, applications for single family house loans guaranteed by FHA increased to 2.52 million loans, an increase of 50 percent from the total in the previous 11-month period.
The number of approved FHA loans for home purchases, reverse mortgages and refinancings increased by 70 percent to 1.67 million.
Out of all FHA mortgages taken to buy homes, 80 percent were taken by first-time home buyers who took advantage of FHA’s lower down payment requirements compared to other lenders. FHA allowed first time home buyers to pay only 3.5 percent while private lenders required at least 10 percent for conventional home loans.
FHA however tightened its loan standards, requiring borrowers with credit scores lower than 500 to make a ten-percent down payment to reduce foreclosure house rates.
With the increase in FHA loans, FHA has captured over 23 percent of the home loan market, marking a significant increase from the only 3-percent share in 2006. With other lenders rejecting a lot of home loan applications, FHA-guaranteed loans contributed significantly to the continued operation of the residential lending market.
According to Moody’s economist Mark Zandi, FHA loans enabled the housing market to float and not fall to a level it could not recover from.
Many borrowers also turned to FHA loans because of the collapse of subprime lenders, which provided easy home loans during the housing boom even without proper financial documentation.
Additionally, FHA increased its conforming loan limits from $362,790 to a high of $729,750 in pricier markets such as Boston and New York. Another factor that greatly increased FHA loans is the federal tax credit for first time home buyers.
According to FHA Commissioner David Stevens, the credit scores of home loan applicants have improved compared to applicants in the past years. Borrowers who took out FHA loans recently have an average credit score of around 690, much higher than the average of 630 in 2007. However, Stevens is still concerned about the rate of FHA mortgages ultimately going into foreclosure house listings.
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