A historic era
This year has already proven to be a news filled year for the Federal Housing Authority (FHA) as the real estate sector continues to struggle in light of a failing economy. To do their part to inject the real estate industry with life, the FHA has recently relaxed the anti-flipping rules but some argue that recent FHA measures are self interested as they also have taken measures like raising mortgage insurance premiums to fill their drying coffers. Meanwhile, numerous lenders are being stripped of their ability to be FHA backed, yet another sign of massive changes in the lending and real estate world.
Today, news of the FHA loan default rates surpassing 9% has even the Washington Post claims that the December 2009 default rate rise (up 6.8% from December 2008) “foreshadows a crush of foreclosures.”
In November of 2009, we reported that the historic mortgage default rate was at 9.64% and that 3.12% of all homes were in the foreclosure process (putting 12.76% of all homeowners in hot water at the time). This is important to note due to the FHA default rate rising to match that of the national rate. Does this in fact spell trouble for the industry? Does this imply a future accumulation of shadow inventories or foreclosures? Or is this simply a case of the FHA backed loans becoming more average?
It seems to me the modifications to the FHA product (higher MIP, lower Seller contributions, higher d/p for lower FICO) is a clear indication that HUD not only knew there was an FHA foreclosure increase coming, but they also had to do the typical government correction of closing the door after the horse has bolted.
We as a general public spend a lot of time looking at the government as some gargantuan ship lumbering along with nothing but idiots at the helm. What I beleive the truth to be (from experience) is many of the agencies within the U.S. Government are run by competent (if slow to act) careerists who will not make a decision without all the data.
It certainly explains the timing of making it harder to get an FHA loan right after you extend the one government incentive (tax credit) that has actually increased sales.
Navy Chief, Navy Pride
Lani — The numbers in the last paragraph got me to wondering. 3.12% of ‘all’ homes were in the foreclosure process. (putting 12.76% of all homeowners in hot water at the time).
I realize these aren’t your numbers, that you’ve pulled them from reliable sources. However, since, depending upon the source, anywhere from 20-33% of the nation’s homes are free & clear (sans any debt whatsoever), are those homeowners included in the ‘all’ when percentages are computed?
No, but that’s a truly great point. Given that piece of the puzzle (you and I talk on the phone about the big picture from time to time, so you and I both know personally our affinity for knowing all parts to the puzzle), it’s really:
3.12% of all MORTGAGES were in the foreclosure process. (putting 12.76% of all BORROWERS in hot water at the time).
Much prefer that answer. The alternative would’ve meant that both percentages would’ve been significantly scarier. Thanks
Lani, my vote is predictable. FHA loans have become a bigger part of the market since this thing started to implode in 2007. Here in California most lenders and Realtors didn’t know how to spell F-H-A before then.
Historically FHA loans have been the loan of choice for first time home buyers and as result when the economy turns sour, they tend to be the first affected with layoffs and downsizing.
The unemployment rate is pushing 15% in SoCal and the underemployment rate is estimated closer to 25%. When people start going back to work, the delinquency rate will go down.