REALTORS® have been aware of tight lending conditions for years. Data on average FICO scores, debt-to-income ratios and downpayments support this conclusion. However, a recent survey conducted by the Federal Reserve sheds more light on which factors are driving banks’ choice to restrict lending.
FHA rules on lending for condos have been in the news recently. The rules that govern which apartment buildings the agency can offer lending at are blamed for limiting demand in the condo market and even driving down prices.
On April 9th, the FHA made another round of changes to the mortgage insurance premiums that it charges. The FHA has increased its premiums as a means of shoring up its books in light of high delinquency and foreclosure rates on legacy lending programs. While the increases to the MIPs are small on their face, combined with the recent expiration of the deduction on mortgage insurance, they add up to not-so-small amounts.
- To better understand how the change in loan limits would impact local markets, NAR Research looked at FHA purchase loans originated between January 1, 2011 and September 30, 2011 (the last day prior to the new limits).
- Of the 10 counties with the largest number of FHA purchase loans originated above the new limits in the first nine months of 2011, nearly all of them were in markets with high delinquency rates.
- Nine out of ten of these markets had a 90-day delinquency rate above the national average 7.2% in August.
- Slower sales and/or a decline in prices could exacerbate this trend. Furthermore, the number of sales impacted by the new limits is likely much higher as these figures exclude GSE lending and loans held in the portfolio of private banks.
Just How Big is the FHA?
The FHA has been in the headlines a lot recently. So have assertions regarding how large of a presence the institution has in the housing market. The FHA’s significance varies based on which benchmark you are measuring it next to; the total sales market, the purchase mortgage market, or the mortgage insurance market. But by whichever measure, the FHA’s role is on the decline. Regulatory changes to the secondary market must first take place, though, for the FHA to withdraw to its historic position.
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