FHA Defaults Increase in FY 2008

The serious delinquency rate on FHA single-family loans rose 31 basis points to 6.91% during fiscal year 2008 (which ended Sept. 30), according to Federal Housing Administration data. The increase occurred despite FHA adding 780,000 mortgages to its insured portfolio. The federal mortgage insurance agency ended FY 2007 with 6.60% of its loans 90 days or more past due. But FHA experienced a surge in mortgage originations during FY 2008 and its insured portfolio increased by 22% to 4.3 million single-family loans. In normal times, this influx of new loans would have driven the serious delinquency rate down. However, FHA borrowers are facing tough times and one-third of FHA foreclosed properties are in Ohio and Michigan, which are suffering from a prolonged economic downturn and loss of jobs. Agency officials also note that FHA loans with down payment assistance provided by nonprofits have a default rate three times higher than other FHA loans. And the performance of those loans will be a "drag" on the FHA insurance fund for the next three to five years, officials at FHA said. Congress passed a ban on DPA on FHA loans that went into effect Oct. 1. But DPA still accounted for 30,900 of the 150,000 FHA loans closed in September.