Borrowers with subprime loans are now ending up in foreclosure twice as often as borrowers with FHA-insured
loans, said Brian D. Montgomery, assistant secretary for housing and the federal housing commissioner for HUD.
Of the 10 states with the highest percentage of FHA-insured loans, only three (Texas, Indiana and Utah) also
rank among the top 10 for foreclosures, new federal data show. The FHA's current strong position follows a sharp
dip in its market share. Between 1996 and 2006, the FHA's share dropped 25 percentage points, from 32% to
7%, among minority borrowers, the same class of borrower that (according to the Center for Responsible
Lending) provided the single-largest rush into the subprime mortgage market. The GAO report linked the drop in
FHA's share of the overall mortgage market to the popularity of adjustable-rate mortgages and other
unconventional loan products generally disallowed in the FHA program, and the hassle of filing the paperwork to
do an FHA loan. Many originators found the fees on interest-only and zero-down payment loans, which the FHA
won't insure, higher than with government loans. In an interesting footnote, the National Association of Mortgage
Brokers told GAO that many of its members couldn't afford to meet the FHA's financial requirements for brokers
writing FHA-insured loans: a brokerage business must have a minimum net worth of $63,000 and provide annual
audited financial statements.