FHA Home Loan Share Up, Government Repo Homes to Rise

by Peter Vernon on Foreclosure Crisis

The number of government repo homes is expected to increase further following the significant rise in the percentage of loans insured by the Federal Housing Administration in June, based on data released by the Mortgage Bankers Association.

Out of all home loans provided to homebuyers in June, FHA-insured home loans comprised 36 percent, the biggest FHA share of the home loan market since 1990.

In August 2005, FHA loans accounted for only 5.8 percent of the home loan market.

Analysts expect government repo homes to increase because of the rising trend in FHA loan default. Based on FHA data, the default rate increased to 5.65 percent in February this year, a substantial increase of nearly 23 percent from the default rate of 4.6 in October last year.

As of the last months of 2008, more than 4 percent of loans insured by FHA were delinquent by 90 days or more. These delinquencies increased the number of government repo homes.

Many housing analysts are worried that the factors that largely caused the current subprime mortgage crisis will also cause another crisis involving FHA loans and government repo homes. They pointed out current housing programs that enable many borrowers to get loans with zero down payments.

In many states, housing officials are providing financial assistance so borrowers can use the federal $8,000 tax credit to make their down payments and their closing costs.

The popularity of FHA loans exploded sharply since 2008, soaring by a staggering 314 percent nationwide. In the first two months of this year alone, 670,000 homebuyers took out FHA loans, compared to the 425,000 taken out in all the 12 months of 2007.

FHA officials expect to insure a total of 1.75 million of new loans in 2009, according to Meg Burns, head of the Office of Single Family Program Development at FHA.

Dennis Maag, a home lending regional vice president at JPMorgan Chase, said his mortgage firm has been carefully screening FHA loan applicants, putting its FHA default rate to only 0.4 percent.

Fifth Third has a 1.6-percent default rate and Huntington has a 2.4-percent default rate.
But FHA loan defaults in other mortgage banks are rising. Strategic Mortgage has a staggering 12.1-percent default rate nationwide while Countrywide Homes Loans holds a delinquency rate of 16.2 percent in Ohio.

To prevent another wave of government repo homes similar to what the subprime crisis caused, analysts said FHA must examine current FHA loan defaults and its loan insurance policies.