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FHA: From Then to Now

Mortgage and Lending with Financial Center Mortgage

Change in the Market

  • In 2006, mortgage volume was $2.8 trillion- 70% originated by Mortgage Brokers
  • $640 billion in nonprime mortgages was originated.
  • Roughly 23% of the 2006 market n$545b originated by the top twenty-five sub-prime origination companies.
  • Home prices increased exponentially from 2001 to 2006, and now home prices are falling in most parts of the country.
  • Guidelines have tightened on Alt-A, sub-prime, and conforming
  • Refinance transactions have slowed, 36.2% market share

Because they couldn't afford to buy back their EPDs, (early payment defaults) many lenders have either been sold, declared bankruptcy and/or shut their doors. see (http://ml-implode.com/) for details. 

Subprime in the past satisfied loans with higher LTV's, less than perfect credit history, and the First Time Home Buyers. But in this industry we never want to shut the door on the American Dream so we aim to finance every lead possible. That is where FHA can help, because before there was Subprime, there was FHA!

How Does FHA Help?

  • Before there was Non-Prime there was FHA
  • After Non-Prime there will be FHA
  • Up to 97% financing (gift allowed for down)
  • Seller can pay as much as 6% of closing costs.
  • There is no minimum credit score.
  • There are no prepayment penalties.
  • Available for first time home buyers
  • Replacing sub-prime and My Community as best source for high ltv, low credit score financing.

FHA Then

The Federal Housing Administration, or FHA, was established in 1934 to:

  • Broaden homeownership
  • 4 in 10 American's owned homes
  • Stimulate employment in the building industry
  • Two million construction workers had lost their jobs,
  • The housing industry was flat on its back
  • Provide better loan financing
  • LTV's were limited to 50%
  • Terms were between 3 and 5 years nended with a balloon payment.

FHA In-Between

  • Market share in 1980's around 20%
  • Market share in 1990's around 15%
  • Market share by 2006 had reduced to 2%
  • Shift from FHA to Non-prime
  • Non-prime loans were easier to originate. Everyone qualified!


  • Has insured over 34 million home mortgages
  • Has 4.8 million insured single family mortgages and 13,000 insured multifamily projects
  • Has a $400 billion insurance portfolio.
  • In 2006, insured almost 426,000 mortgages
  • FHA has played a large role among lower-income, first-time homebuyers and credit challenged borrowers
  • 79 percent of FHA-insured home purchase loans went to first-time homebuyers.
  • Roughly 7 out of 10 American's own their home.

What's to Come with FHA?

  • Risk-based pricing (rates and insurance premiums)
  • 100% financing
  • Larger mortgage limits in high-cost areas
  • Revised condo guidelines to reopen the condo market to FHA
  • Longer amortization schedules (as long as 40 years)
  • Conforming loan limits (up to $417,000)

What Does all this Mean?

  • An expansion in FHA lending could help offset the decline that has occurred in nonprime lending.
  • If non-prime was $640 Billion, 23% of the market place in 2006, a good portion of that will have to shift to FHA.
  • 1 out of every 4 borrowers are potential FHA clients

How Does FHA Work?

  • As we know, loans over 80% have MI
  • My community program has 30% coverage
  • FHA has 100% coverage
  • FHA borrowers pay an upfront fee of 1.5 percent and an annual fee of 0.5 percent.
  • Uses AUS (Automated Underwriting System)
  • Purchase and refi, both C/O and R/T of O/O 1-4 units
  • Easier qualification for past B/K or current Ch. 13
  • Works with borrowers in risk of default


National Association of Mortgage Brokers President George Hanzimanolis:

"I think that FHA would be a wonderful solution to helping the people who are in [nonprime] now.

 Compliments of Wachovia Bank
Bruce Bourgault, Vice President, Mpro
Central Pacific Homeloans - Honolulu, HI
Hi Spencer -- Great post, I gave you a 5.  I too am a believer in FHA and we need to educate our Realtors and our home buying clientel as to the great benefits of this loan program.  Aloha
Jul 15, 2007 07:17 AM
Keith Smolik
Security Mortgage Coproration - Chandler, AZ

Isn't it surprising how many realtors and originators( myself included) have forgotten about FHA? I have used FHA more in the last 6 months than I did in the previous two years.

Jul 16, 2007 05:42 AM