FHA to Insure $111 Billion in State Loans Over 5 Years

The federal government, attempting to boost homeownership in one of the least-affordable states, said Friday that it will insure $111 billion in new loans made by private lenders in California over the next five years.

That would represent an increase of more than $3 billion per year on average from last year’s sum. The Federal Housing Administration made loan commitments totaling $19 billion statewide last year, according to Nima Nattagh, an analyst at First American Real Estate Solutions, an Anaheim research firm.

“This is a pretty significant event that’s going to help a lot of people qualify for a home,” said John Burns, an analyst at the Meyers Group, an Irvine research firm.

Nattagh said that the additional loan support by FHA would especially help first-time and low- to moderate-income buyers purchase a home.

Of the $111 billion pledged statewide, $68 billion will be used to back mortgages in Los Angeles, Orange and Riverside counties over that period, said Theresa Camiling, an official at the Department of Housing and Urban Development, which oversees the FHA and made the announcement Friday in Santa Ana.

But the FHA program, which caps the amount insured on homes at $219,849 in Orange County, is likely to have a limited effect in an area where the median home price was a record $273,000 in June.

FHA’s stepped-up commitment in California comes at a time when the home ownership rate rose to 67.2% nationwide during the second quarter. But in California, where home prices have risen at a faster pace than incomes, the ownership rate is only 55.7%.

The state has long lagged behind the nation in this measure, but the gap between California and the U.S. is now the widest since the 1980s, according to the latest U.S. Census Bureau figures. California has more metropolitan areas ranked among the least-affordable places to live than any other state.

Although FHA’s bigger commitment was viewed positively, analysts noted that the increased support to lower-income buyers could backfire if there’s an economic downturn. Their homes could lose value quickly, causing loan defaults and leaving buyers owing more money on their mortgages than their houses are worth.

The federal insurance program guarantees the timely repayment of mortgage loans if a home buyer defaults.