by Broderick Perkins
(4/18/2011) - As predicted, tougher underwriting rules are cutting into the share of Federal Housing Administration (FHA) loans, loans that largely took the place of toxic subprime loans after the housing meltdown.
The share of borrowers using government-insured FHA home loans fell to its lowest level in 27 months in February, based on an analysis of 20 large housing markets nationwide by San Diego, CA-based DataQuick Information Systems.
DataQuick surmises recent changes to qualifying standards for FHA mortgages and lenders' own tighter requirements are both contributing to the decline in the number of buyers using the loans.
Weak job growth, concerns over job security, and the inability of homeowners to sell their homes for enough to pay off their mortgage and buy another house are also factors.
In February, 33.3 percent of the purchase mortgages used in metro areas were FHA-insured, down from 34.2 percent in January and 38.2 percent in February 2010, DataQuick reported.
Last month's figure was the lowest since FHA loans made up 33 percent of the purchase loan market in November 2008.
FHA loans, a small fraction of all mortgages before the housing boom went bust, peaked at an average 41.1 percent of all home purchase loans in November 2009. During the bust, some high cost regions saw FHA loans soar to 50 percent or more of all purchase loans
Dataquick reported FHA use in February varied from as little as 10.3 percent of all purchase loans in the Honolulu area to as much as 43.2 percent in the Orlando region.
FHA loans have been very popular with first-time buyers and some move-up buyers in recent years after easy-money subprime lending melted down with the credit crunch of the bust. The meltdown made non-government-insured home loans, especially low-down-payment mortgages, more difficult to obtain and FHA loans became the alternative.
The median price paid for a home bought with an FHA loan in February was $195,000, the same as in January but down 2.5 percent from $200,000 a year earlier.
The median FHA purchase loan amount in February was $187,668, up slightly from $186,500 in January but down 4.4 percent from $196,278 a year ago.
FHA loan limits vary by region. but can be as high as $729,750 in the nation's costliest housing markets.
As the FHA loan share has fallen government-insured VA (Department of Veterans Affairs) loans are up.
Dataquick says VA loans represented 6.4 percent of all home purchase loans made in February, virtually unchanged from 6.5 percent in January, but up from 5.5 percent a year earlier. In recent years, the peak for VA loans, which do not require a down payment if certain conditions are met, was 6.7 percent in December 2010.
Among the metro areas DataQuick surveyed, the percentage of VA purchase loans was highest in Honolulu (18.9 percent), San Diego, CA (15.3 percent), Washington D.C. (13.8 percent), Seattle, WA (10.6 percent) and Las Vegas, NV (10.4 percent).
The VA share of purchase loans was lowest in the San Jose, CA metro area (0.9 percent), New York, NY (1.1 percent) and Los Angeles/Orange counties, CA (2.4 percent).
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