Demand for Federal Housing Administration single-family loans rose in August with lenders funding $17.4 billion of government-backed product, an 8% increase from the prior month.
With one month left in the government's fiscal year, FHA has endorsed nearly $220 billion of single-family and reverse loans - a 25% decline form the same period in 2010. (The government's fiscal year ends September 30.)
Normally, about two-thirds of FHA's business represents purchase money loans, but this time around the results are different. FHA-sponsored purchase money mortgages totaled $123.2 billion as of Aug. 31, down 31% from a year ago, according to the agency's 'Single-Family Outlook' report released earlier in the week.
Housing analysts, including consultant Brian Chappelle, believe higher FHA mortgage insurance premiums and lender "overlays" are hurting the program.
Chappelle noted that lenders are deploying tighter credit standards (overlays) than are required by the program because they fear the government will ask for reimbursements should the mortgage enter default status. "Lenders are afraid of the contingent liability they face in FHA transactions," Chappelle told National Mortgage News.
He also said the lawsuit filed by the New York U.S. Attorney against Deutsche Bank in May has had a chilling impact on FHA lenders. The lawsuit cites Deutsche Bank's defunct subsidiary MortgageIT for failing to conduct "quality control" reviews of its loans to prevent high default rates.
As a result, lenders are no longer serving traditional FHA borrowers who have credit scores of 620 to 640, he said. The average FICO score for an FHA borrower was 697 in August.
