Within the past 18 months or so, home loans underwritten by the Federal Housing Administration (FHA) have grown exponentially in their share of the mortgage market.
In the first half of this year, roughly 19% of new home loans were backed by the FHA, up from about 2% in 2006. (Figures from Inside Mortgage Finance, as reported in today's edition of The Wall Street Journal by Reporter James R. Hagerty).
Due to an increase in claims against the agency due to escalating loan defaults, however, the agency plans to further tighten its loan underwriting requirements and build its reserve base.
According to Federal Rules, the FHA is projected to fall below the minimum 2% reserve requirement on loans it insures in the very near future. The reserve fund pays for expected claims over the coming 30 years due to projected mortgage defaults. The reserve threshold has been in steady decline over the last few years. It has fallen below the 2% threshold from its 3% level one year ago, and its 6.4% level in 2007.
By tightening its approval standards, FHA Commissioner David Stevens contends the agency could avoid raising the hefty Mortgage Insurance Premiums that accompany each new loan and monthly payment, and could leave its current minimum 3.5% down figure unchanged.
The new FHA Rules will more stringently verify income, increase the minimum acceptable credit score for borrowers, as well as other quality controls. It will also impose a maximum loan-to-value of 125% on refinanced loans, the same as currently exist for Fed-backed Mortgage Investors Fannie Mae and Freddie Mac.
New appraisals will be valid for no longer than four months - up from as many as 12 months under their old rules. Further, appraisals will now have to be independently ordered, through an Appraisal Management Company, similar to the Home Valuation Code of Conduct (HVCC) Rules imposed on most conventionally-financed loans, effective January 1st.
Also, the FHA will be hiring a Chief Risk Officer, for the first time in its history.
Last July, 7.8% of all FHA-Backed Loans were at least 90 days in arrears, compared to 6.6% one year earlier. Tallied for the Second Quarter, 2009, the Mortgage Bankers Association found that 8% of all home mortgages were at least 90 days late, so FHA Loans fared slightly better.
See our post via BlogChicagoHomes.com.
DEAN & DEAN'S TEAM CHICAGO