Real Estate Market

Fitch Ratings: FHA loans in jeopardy

(8/21/2012) - Grab a Federal Housing Administration (FHA) loan while you can - or at least while they are still relatively cheap and easy to get.

Higher mortgage insurance premiums on certain loans and a $1 billion slice of the National Mortgage Settlement hasn't lifted the federal housing agency out of the red and things could get worse,

according to the latest study on the FHA's sagging health.

Global rating agency, Fitch Ratings is painting a gloomy picture for the federal agency that stepped up to help bail America out of the home loan crisis with mortgage insurance on loans made by FHA-approved lenders.

The agency's low and no-down payment loans virtually replaced toxic subprime loans that contributed to the housing bust and those subprime replacement loans aren't holding up very well.

FHA's capital reserves ratio was down to 0.24 percent at year's end, well off the 2 percent level mandated by Congress to protect against credit losses on FHA-insured loans.

The mortgage settlement was a $1 billion boost and the FHA improved its funding position by boosting mortgage insurance premiums on purchase loans.

However, to keep up the demand, the agency recently backpedaled on a stiff underwriting rule regarding consumer credit disputes, extended an anti-flipping waiver for the third time and lowered the cost of refinancing, while streamlining refinanced mortgages with looser underwriting rules.

Fitch says a taxpayer bailout isn't in the works for fiscal 2012, but a recent academic study reported FHA losses could eventually warrant just such a bailout - to the tune of $50 million.

Fitch said rapid growth in FHA-insured loans and the high delinquency rate are chipping away at the reserves and suggested, contrary to the FHA's projections, the agency isn't likely to restore the reserves to 2 percent by 2014.

How high is the delinquency rate?

Wells Fargo reported that 90-day past due delinquencies totaled $1.4 billion for non-guaranteed loans as of June 30. The figure for government-guaranteed loans, including both FHA and Veterans Administration (VA) was $20.4 billion, almost 20 times as much.

Fitch also reported, for eight of the largest U.S. banks with substantial portfolios of FHA-guaranteed loans on their books, combined 90-day past due delinquencies totaled $79.4 billion at June 30. Of that total, 83 percent, or $66.0 billion, represented government-guaranteed mortgages.

And it's not just about a majority share of bad loans. While delinquency rates for non-guaranteed loans are improving, FHA loan delinquencies are getting worse. Those low down payments don't give buyers much of an equity stake in their home. The lack of equity and underwater conditions don't give buyers a strong incentive to keep paying the mortgage if hard times hit.

Fitch says FHA gets some slack because bank earnings are up and commercial mortgages are performing well. Together, those trends allow banks to better manage losses, including those from FHA loans.

However, Congress likely will have no stomach for an FHA bailout in 2013 and without a quick change in delinquency rates and foreclosures, Fitch says "We expect the FHA to evaluate unconventional methods to boost reserves, potentially including a more aggressive stance vis a vis banks over full insurance coverage of defaulted mortgages."

The trend could force the FHA to look for opportunities to send some defaulted loans back to the banks if the agency's funding worsens and home prices don't move up fast enough.

That could limit the availability of the loans.

 

Refinance at Today’s Low Rates!

 

Follow the links to continue reading the related articles

One-in-three Fannie, Freddie refis are HARP loans, as high loan-to-value HARP loans comprise large share of hard-hit states' refis

Space agency credit union offers down-to-earth, federally-insured, low- and no-down home loans targeting a limited audience, for a limited time

Understanding Mortgages: What are FHA Loans?

Rise in mortgage distress calls could signal an unexpected surge in foreclosures

FHA back pedals on credit dispute underwriting rule, perhaps only temporarily

Dissecting Delinquencies: What the Decline in Delinquencies Means for the Housing Market

 

 

 

 

 

 

 

 

Fannie Mae & Jumbo Mortgage Rates

Just One Click! = Current Rate Chart

Pennsylvania Mortgage Rates Current Mortgage Rates - Hawaii Current Mortgage Rates - Alaska West Virginia Mortgage Rates Virginia Mortgage Rates District of Columbia Mortgage Rates Maryland Mortgage Rates Delaware Mortgage Rates New Jersey Mortgage Rates Connecticut Mortgage Rates Rhode Island Mortgage Rates Massachusetts Mortgage Rates New Hampshire Mortgage Rates Vermont Mortgage Rates New Hampshire Mortgage Rates Maine Current Mortgage Rates Vermont Mortgage Rates Current Mortgage Rates - New York Current Mortgage Rates - Michigan Current Interest Rates - Wisconsin Current Mortgage Rates - MINNESOTA Ohio Mortgage Rates Current Mortgage Rates - Kentucky Current Mortgage Rates - Indiana Illinois - Current Mortgage Rates Current Mortgage Rates - Iowa Missouri Mortgage Rates Current Mortgage Rates - North Carolina South Carolina Mortgage Rates Current Mortgage Rates - Florida Current Mortgage Rates - Georgia Current Mortgage Rates - Tennessee Current Mortgage Rates - Alabama Current Mortgage Rates - Mississippi Current Mortgage Rates - Louisiana Current Mortgage Rates - Arkansas Current Mortgage Rates - Oklahoma Current Mortgage Rates - TEXAS Current Mortgage Rates - New Mexico Current Mortgage Rates - Arizona Current Mortgage Rates - Kansas Current Mortgage Rates - Nebraska Current Mortgage Rates - Colorado Current Mortgage Rates - Wyoming South Dakota Mortgage Rates Current Mortgage Rates - North Dakota Current Rates - Montana Idaho Current Rates Washington Mortgage Rates Current Mortgage Rates - Oregon Current Mortgage Rates - Utah Current Mortgage Rates - Nevada Current Mortgage Rates - California

Start by selecting your state


Get the Updated and Improved Mortgage Rates App from ERATE.com

iPad for Mortgage Rates

Real Estate Market News

Refinancing: Selecting a Loan

Moving Ahead With Your Refinance