One in three apps seek FHA, VA loans

Government-insured loans -- primarily those backed by the Federal Housing Administration -- accounted for about one in three mortgage applications in October, the Mortgage Bankers Association reported.

That's a dramatic rise from one in 10 applications a year ago, the MBA said, and the biggest share of applications for FHA, VA and other government-insured loans since February 1991. The MBA cited lower down-payment requirements and less strict underwriting standards for the loans as reasons for their popularity.

Another factor was the decision by lawmakers in March to boost FHA and conforming loan limits to $729,750 in high-cost areas for 2008. With those limits set to retrench to no more than $625,500, most high-cost markets will see smaller loan limits next year, the MBA said.

The maximum loan-to-value (LTV) ratio for FHA loans is 97, meaning a 3 percent down payment is required, while the Department of Veterans Affairs continues to guarantee some 100 percent LTV loans. Minimum down-payments for FHA-backed loans will be increased to 3.5 percent in 2009.

Fannie Mae and Freddie Mac, by comparison, have 95 percent LTV maximums. The government-sponsored enterprises, or GSEs, also require private mortgage insurance when borrowers are making down payments of 20 percent or less. Many private mortgage insurers won't provide insurance on loans in "declining markets" if the LTV exceeds 90 percent.

The MBA survey showed applications for government-insured loans were up 113.6 percent from a year ago in October, while applications for conventional loans were down 49.7 percent. Actual refinancings from conventional loans to FHA-insured loans were up 144.3 percent from a year ago, the MBA said.

Since the MBA began surveying loan applications in January 1990, government-insured loans have ranged from a low of 5.8 percent of total applications in August 2005, to a high of 43.8 percent in February 1990.

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