Buyers flock to FHA, government-backed loans
Conventional loan applications drop 50 percent
By Inman News, Monday, August 18, 2008.Borrowers are flocking to government-insured loans, particularly those offered by the Federal Housing Administration, as they seek to refinance out of costly adjustable-rate mortgages or take out purchase loans with low down payments.
The Mortgage Bankers Association says applications for government-insured loans were up 133.9 percent in July from a year ago, while applications for conventional loans like those purchased and guaranteed by Fannie Mae and Freddie Mac fell 50.2 percent.
Ginnie Mae, which securitizes FHA loans, is surpassing Fannie and Freddie in issuance of securities backed by fixed-rate mortgages during August, the blog HousingWire.com reported, citing data from eMBS Inc.
FHA loans typically have lower down payments than those offered by Fannie Mae and Freddie Mac, the MBA noted, with a 97 percent maximum loan-to-value (LTV) ratio for FHA loans compared with 95 percent for Fannie and Freddie. Conventional loans also tend to have higher credit score requirements than FHA loans.
In addition, Congress and the Bush administration have expanded FHA loan guarantee programs by raising loan limits and creating new products that allow borrowers who are behind on their existing mortgage refinance into more affordable loans.
The share of loans guaranteed by government programs such as FHA and VA has been increasing since February 2007, but that growth has accelerated this year, the MBA said. Applications for government-insured loans, which hit a low in August 2005 with a market share of 5.8 percent, accounted for 29.1 percent of mortgage applications in July, compared with 8.4 percent a year ago and 9.4 percent in January.
The level of conventional to FHA refinance applications was up 317 percent in July from a year ago, and most of that business is likely to be borrowers refinancing out of subprime ARMs, the MBA said. The number of loans guaranteed rose more modestly -- 261 percent -- because not all applications are approved.
"The higher application and endorsement activity for government-insured loans highlights the need for FHA modernization," the MBA said of recently approved legislation that's intended to make the FHA approval process more streamlined and efficient.
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Submitted by Jay Thompson on August 18, 2008 - 1:23pm.
I'm surprised there was no mention of the impending demise of seller-financed Down Payment Assistance Programs in this article. Programs like Ameridream and Nehemiah account for a significant chunk of first time home buyer FHA loans. That could all change Oct 1...
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Alexis Eldorrado on August 18, 2008 - 2:53pm.
We have had a recent listing sell and the buyer financed through FHA. I was told by their broker that the FHA process is phenomenally better in terms of inspections, paperwork, and leaving the Seller with the same amount of proceeds as if it were a conventional mortgage.
Years ago in the Chicago real estate market, FHA was considered a Seller's worst enemy. With so many Chicago condos and Chicago houses now being financed not only here but nationwide by FHA, it is the result of good work by the federal government in keeping their finger on the pulse to maintain a healthy real estate market.
Alexis Eldorrado
Managing Broker
www.Eldorrado.com
Submitted by Mike Sweeney on August 18, 2008 - 2:59pm.
Supposedly, they're working on a separate piece of legislation to revive dpa programs.
LionSaves.com - refinance your debt
Submitted by Jay Thompson on August 19, 2008 - 5:46am.
"Supposedly, they're working on a separate piece of legislation to revive dpa programs."
Yes Mike, that would be H.R. 6694:
http://www.phoenixrealestateguy.com/down-payment-assistance-programs-the...
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
.
Submitted by Matt Carter on August 19, 2008 - 9:09am.
Jay, we have done a quite a few stories on seller-funded DPA, including the introduction of HR 6694, but you're right it probably wouldn't have hurt to bring up the subject again. Last ditch attempt to preserve seller-funded gifts (Aug. 4, 2008) FHA changes make housing bill a 'mixed bag' (July 30, 2008) Companies rallying for seller-funded down payments (July 15, 2008) Clock ticking again on seller-funded down payments (June 17, 2008) Downpayment assistance should be ended, not mended (April 7, 2008) Judge throws out ban on down-payment assistance (March 5, 2008) Nonprofits sue to keep seller-funded assistance on FHA loans alive (Oct. 2, 2007) MBA goes to bat for seller-funded down-payment assistance (Aug. 13, 2007) Tighter down-payment-assistance rules proposed (May 14, 2007)Submitted by J. Craig Anderson on August 22, 2008 - 11:37am.
I'd venture to say that seller-funded DPA is far and away the No. 1 reason why homebuyers have returned to FHA loans. Here in Arizona, DPA programs are being used for at least 70 percent of all new home purchases.
We may not have to wait until Oct. 1 to see the effects of the impending ban, however, because some banks are starting to reject those loans even with more than a month remaining before the new federal rules go into effect.
Of course, 3.5 percent down is still going to be a lot less than what conventional loans require, so I don't expect the popularity of FHA loans will dwindle in comparison with conventional loans.
There are just going to be a lot fewer of them.
Submitted by Spencer Llewellyn on August 23, 2008 - 1:51pm.
More information about FHA Mortgages and the Housing and Economic Recovery Act of 2008
2008 is available at http://www.fha-101.com .
Submitted by Lonny Coffey on August 25, 2008 - 6:05am.
I am not surprised that conventional financing is down as significantly as it is. Fannie and Freddie have started to charge significantly more for lower credit scores. Not bad credit just lower scores. It does not take much to figure out they are simply profiteering off the consumer. Lenders will send buyers to FHA loans when they make more sense. Fannie and Freddie must not realize buyers do have choices. They are getting less market share based on their tactics.
As far as DPA goes, the new bill (even if it does pass) won't make much difference if the investors who buy FHA loans decide not to buy them with DPA which we are starting to see. Much work to be done before this all settles out.