Is FHA financially sound? Also a Lon Welch Invite
September 1st 2009 05:17 pm
Now for a few FHA updates. There has been some talk that FHA is suffering financially and that because of the huge increase in the popularity of FHA loans, FHA insurance may be over extended. In fact a recent Wall Street Journal article questioned FHA’s performance. The statistics however show otherwise. Through Universal Lending’s connection with an FHA advocacy group in Washington DC, we have learned that things doing just fine. Here are a few highlights:
1) FHA’s capital ratio is projected to remain above the Congressionally mandated 2% level.
2) FHA’s FY 2010 book of business is expected to “earn a profit” of $1.7 billion.
3) FHA recently announced that it will not be necessary to raise mortgage insurance premiums for FY 2010.
4) FHA’s most serious underwriting deficiencies have been addressed including the elimination of the seller funded down payment program. This change reduces FHA’s costs by $2.5 billion in FY2010.
5) FHA loans are performing better on a relative basis than prime loans. According to the latest federal regulator report on bank portfolio performance, the percentage of prime loans that are seriously delinquent has increased 161% while the FHA rate has increased only 30%.
6) FHA’s borrower credit profile has improved dramatically, with average borrower FICO scores increasing from 626 to 692 in the last year.
Probably even more important, the percentage of FHA homebuyers with higher risk characteristics (FICO scores below 620) has declined dramatically in the last two years (from 45% in June 2007 to 7% in June 2009). Dispelling the myth that FHA is being flooded with subprime loans, the agency insured 43% fewer purchase loans with FICO scores below 620 in June 2009 than were insured in June 2007 even though FHA?s purchase activity increased 345%.
So how has FHA managed to remain financially sound when other larger institutions have experienced massive losses? FHA lenders have a dog in this hunt. They have strong financial incentives to stick with smart underwriting standards. They also have not wavered from the “plain jane” 30 year fixed loans. FHA loans are also priced right and lenders will work hard to make sure that the FHA loans perform well.
FHA is also cracking down on lenders that do not follow the rules. The recent action with Taylor, Bean, & Whitaker is a reflection of that. FHA lenders are recertified every year and the lender must report any irregularities or changes in their net worth. Lenders like TBW also have a reputation risk if there are any public disclosure of any violation of FHA rules. So Lenders have a huge incentive to keep loans that are at a low risk of default.
This is true at the origination level as well. Lending guidelines are much tighter which means that some loans that could be done a year ago may not be able to be done today. You can look for even tighter guidelines in the future.
So the good news is that FHA is still in great shape and is a still a great loan for most buyers that do not have a big down payment. The bad news is that you really need to get your buyers prequalified with a good FHA lender before you spend any time at all showing them properties because fewer of them will qualify then before.
Let’s talk about the Lon Welch event invite. Lon called me the other day and wanted me to help get the word out about a new workshop he is presenting in Denver. The workshop is called: “The Thrive Workshop”.
Lon says “This idea packed workshop is a interactive discussion of the success concepts for Realtors from the 2009 Edition of “Thrive: How Realtors Can Succeed In A Down Market”. Over 12,000 agents in Colorado were surveyed to identify agents who were succeeding in a market down cycle and determine what they were doing that helped them to continue to succeed despite the changes in the market. In addition, almost 100 other agents nationwide were interviewed in other down markets and the results were analyzed and the success factors and best practices were identified. Attendees will be able to review the habits and behavior of these successful agents, take the survey, and compare their results to these successful agents. This is an very insightful experience and will help the attendee to identify areas where they can improve their performance and generate more income. No fluff, just good material that you can use right away to improve your business.”
This event will be held on Wednesday September 9th from 1 to 3pm at the Kaplan Real Estate School at Colorado Blvd and I-25. There is room for 90 people so RSVP to me and I will get you registered for the class. Biff Birkmeyer of Direct Title is co-sponsoring the event.
Also please visit a new blog site at www.insiderealestatenews.com This is a site that is edited by John Rebchook formerly of the Rocky Mountain News and has contributions from such notable as Oliver Frascona. This site is sponsored by Universal Lending Corp.
Is FHA financially sound? Also a Lon Welch Invite | US Mortgage responded on 01 Sep 2009 at 7:44 pm #
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