More Californians turning to the FHA
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Almost 10% of California mortgages were FHA-backed in 2008, compared with 2% in 2007. ‘Agency Copes With a Mortgage-Insurance Overflow’ in Friday’s Wall Street Journal calls into question the Federal Housing Administration’s ability to handle the increase from across the nation:
Hundreds of private lenders, using the latest technology and paying high salaries, failed to adequately manage mortgage credit risk during the housing boom. Now, the Federal Housing Administration, using 24-year-old computer programs and civil servants who still handle some loan documents by hand, is trying to do better.
‘Can the agency handle the responsibility it has already been given?’ the WSJ story asks.
Steve Preston, the outgoing secretary of Housing and Urban Development, of which the FHA is a part, says the answer is yes. ‘We are handling the volume,’ he said in an interview, adding that the department moved resources from lower-priority projects earlier this year. The FHA, which insures lenders against defaults on home mortgages that meet the agency’s standards, saw its share of new mortgages increase to 26% in this year’s third quarter, up from 3% for all of 2007, according to Inside Mortgage Finance.
Not everyone agrees, however:
Congress in March increased loan limits on FHA-backed loans to $729,000 in the most expensive housing markets, up from $329,000. Next year, those limits will fall to $625,000 in the most expensive housing markets. Still, some housing experts worry that an outsized share of the FHA’s new business is coming in these high-cost housing markets. ‘It’s getting into markets that are a lot riskier than it has in the past,’ says Ann Schnare, a housing consultant.
Interesting that the FHA hasn’t changed its ground rules while other lenders have been tightening standards. Down payments as low as 3% will increase to 3.5% next month, but still. Who else is accepting 3% down these days?
-- Lauren Beale
Thoughts? Comments?
