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FHA market share increases, but cash reserves shrink

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FHA is a mortgage loan insurer that has stepped into the rather sizable vacuum the recent housing finance market collapse created. Inside Mortgage Finance reports that its market share has jumped from a paltry 3% in 2006 to a strong 23% in the second quarter of 2009. It has become very popular especially with first-time home buyers because of its as low as 3.5% down payment requirement and more accommodating underwriting guidelines. Those parameters, actually, have to be well-liked by all borrowers.

As real estate prices have been steadily sinking in several areas, among them of course Las Vegas, FHA's increased exposure in them is also bringing more losses. Mortgage Bankers Association, or MBA, enlightens now that by the end of June 7.8% of its insured mortgages were 90 days or more late or then already in foreclosure, while a year ago that figure stood at 5.4%. The trend clearly is leading in the wrong direction.

FHA is required by Federal law to hold cash reserves a minimum of 2%, counting anticipated losses, of its insured mortgage portfolio. In 2007 the quotient was a healthy 6.4%, but took an ominous drop to around 3% last year. Another indicator that gets government housing officials and others in the know talking, some of whom are suggesting tighter controls.

The mortgage arena is today by a large measure maintained by Washington, FHA itself having a good share of it and then there is the Fed that is by far the most active buyer of Fannie Mae and Freddie Mac paper on the secondary mortgage market. FHA could be pressured into tightening oversight just to abide by the law, and the 2% minimum, and that would put more strain on any nascent nationwide real estate recovery. That in fact is already evident, as the new commissioner recently took a firm stance toward a national FHA lender, suspending its charter.     

The housing market appears to be at a turning point for the better in many regions. That should help stabilize prices and therefore rein in any further losses at FHA. It then would be able to continue operating without too many new restrictions and provide further momentum to the budding recovery that everybody is anxiously waiting for.


Posted by


Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

My cell: 702-499-1006

Patrick Randles
Nova Home Loans - Tucson, AZ

We will keep our fingers crossed that the losses don't continue to trend in the wrong direction.

Sep 06, 2009 09:14 AM
Eric Bouler
Gardner Realtors, Licensed in La. - New Orleans, LA
Listening to your Needs

Hey, the taxpayer's can bail them out.  FHA should do better than the rest however. The public option may end up running everyone else out of business.

Sep 06, 2009 09:29 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

Great post (missing in my pending outsiders still!)  This one definitely deserves a reblog!

Sep 06, 2009 09:33 AM
Monika Depalo
REAL ESTATE Agent/Stager

It sounds like a positive direction and who could ask for more.

Sep 06, 2009 09:34 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Esko...  let's not forget that a of this happened because of new lenders doing FHA loans and new underwriters that were experienced.  Now, that statement is based on my opinion..  but here in NJ alone, we went from about 323 underwriters to about 800 in the last few years. So yes, FHA loans have increased market share, but were the loses also due to poor underwriting?  And let's look at one more thing.  The economy and job loses.  How many of these that are now late were affected by the economy or a job loss. And this is not problem with your article, but those that put this information out there for the first time, but that they don't give details. I would love to know how many of these were due to job loses.

jeff belonger

Sep 06, 2009 10:33 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Esko: Thanks for the update. I appreciate it. I think the counterbalance is we're seeing some lenders now requiring a 640 minimum credit score to do an FHA loan. I'm seeing a fair amount of credit repair these days for borrowers with blemishes. Thanks again!

Sep 07, 2009 04:38 AM
Esko Kiuru
Bethesda, MD


Let's hope home values will stabilize and help out not only FHA, but the entire housing industry.

Sep 08, 2009 06:07 AM
Esko Kiuru
Bethesda, MD


The taxpayer has been stretched thin already. He needs a break.

Sep 08, 2009 06:09 AM
Esko Kiuru
Bethesda, MD


Thanks for the reblog.

Sep 08, 2009 06:11 AM
Esko Kiuru
Bethesda, MD


Good to have you stop by.

Sep 08, 2009 06:12 AM
Esko Kiuru
Bethesda, MD


The poor labor market definitely plays an important role in FHA loan losses.

Sep 08, 2009 06:13 AM
Esko Kiuru
Bethesda, MD


The new commissioner has already tightened things and the FICO upgrade seems to be one of them.

Sep 08, 2009 06:15 AM
Hello Paul, thank you for this video. I'm 22 looking to buy my first place with in the next year here in California. Thinking of mnilay going with the condo approach. I have a co-signer willing to help qualify me for the finance process my grandmother. the fha loan process is what i think i will go with but how do you even find bank owned properties that i can qualify for? are my tax returns going to affect me in getting qualified for the loan with a co-signer with an over 800 credit score?
Jul 18, 2012 02:04 PM