WASHINGTON—Originations of Federal Housing Administration-backed loans should hold somewhat steady in the new fiscal year, which began just a few weeks ago.
The Department of Housing and Urban Development projects that the FHA will insure $288.7 billion of single-family loans in FY 2011, down 9.4% from the previous fiscal year. (In 2009 a record $360.7 billion of FHA loans were funded in the primary market.)
Some housing economists think 2011 may yield just $1 trillion in new originations. If that projection and the HUD estimates hold true, that means FHA will maintain its 30% market share.
The agency also noted that for the first time ever, the average FICO score for newly insured loans reached the 700 level, actually 702.
The HUD origination projections appear in the recently published “FHA Single-Family Outlook.”
In October mortgage bankers funded $24.4 billion of FHA loans, flat from September and at the low end of the FY 2010 monthly range.
Also, the FHA serious delinquency rate (90 days or more past due) fell to 8%, down from 8.4% in September. HUD expects FHA foreclosures will level off in FY 2011 at 100,000 units, compared to 99,650 foreclosures in FY 2010.
The FHA also received a good report card from its independent auditors. The new FY 2010 actuarial report shows the capital ratio of FHA Mutual Mortgage Insurance edged down 3 basis points to 0.50%. But the fund is still in the black and will not need a bailout.
While the single-family program is still operating at a capital level below the 2% statutory minimum, it appears the fund will remain above water even if the economy and home prices take another dive.
"While we need to continue to carefully manage risk, the report shows the MMI fund remaining self-sufficient in every scenario tested by the actuaries," HUD secretary Shaun Donovan said.
The 3 basis point slip in the capital ratio is due mainly to projected losses in the FHA reverse mortgage program. Not including HECMs, FHA capital ratio would be 0.79%.
Meanwhile, the legacy of FHA loans with seller-funded downpayment assistance continues to be a drag on the fund.
SFDPA loans comprised 30% of FHA originations before Congress banned the practice in 2008. The ban affected nonprofit housing groups that arranged downpayments for low-income, first-time borrowers. Allegations abounded that sellers generally recouped the downpayment by jacking up the home price. The resulting high LTV Loans have claim rates that are up to three times those of other FHA single-family loans.
"If they didn't do seller-funded downpayment loans, the FHA would exceed its 2% minimum capital requirement," said FHA consultant Brian Chappelle.
The Potomac Partners principal noted the FHA has shown resilience during the economic downturn that has hurt so many other players. "The FHA is the leading provider of purchase mortgages in America and doing it on an actuarially sound basis, which is remarkable in this environment," Chappelle said.
The FHA isn't out of the woods yet but the new actuarial report should give HUD officials leeway to ease up on future tightening.
The FHA wants to reduce seller concessions to 3% from 6% and plans to make a final decision by yearend. These concessions allow sellers to cover closing costs and buy down the interest rate for the buyers. The industry is divided over the issue and homebuilders strongly oppose the current proposal.
Recently, HUD rescinded a newly implemented cap on the combined loan-to-value ratio in FHA mortgage transactions that some considered unnecessarily restrictive.
On Sept. 7 the FHA issued ML 2010-24 that imposed a 97.75% cap on the combined LTV of the first FHA mortgage and any secondary liens.
Six weeks later, the FHA rescinded the combined LTV cap. "Only the FHA-insured first mortgage is subject to FHA's geographically maximum mortgage limits," the agency says in ML 10-36.
