The share of borrowers using government-insured FHA home loans dropped to its lowest level in more than two years in February, based on a survey of 20 large housing markets nationwide. The trend likely reflects tighter lending criteria for the low down-payment loans, according to a recent report by DataQuick Information Systems.
In February, 33 percent of the purchase mortgages used in those 20 metro areas were FHA-insured, down from 38 percent in February 2010. FHA loans peaked at 41 percent of all home purchase loans in November 2009. Since then, FHA’s share of purchase mortgages has declined steadily.
FHA use in February varied from as little as 10 percent of all purchase loans in the Honolulu area to as much as 43 percent in the Orlando region. In the San Jose metro area, FHA home loans as a share of all purchase loans peaked at 22 percent in 2007, then steadily dropped. In February, FHA loans only accounted for 16.5 percent of all purchase loans in the San Jose metro area.
The median price paid for a home bought with an FHA loan in February was $195,000. The median FHA purchase loan amount in February was $187,668. FHA has loan limits that vary by region, up to $729,750 in the nation’s costliest housing markets.
FHA loans have been very popular with first-time buyers and some move-up buyers in recent years because the subprime lending meltdown and credit crunch made non-government-insured home loans, especially low-down-payment mortgages, more difficult to obtain. The DataQuick reports indicates the government’s recent changes to qualifying standards for FHA mortgages, along with lenders’ own requirements for these loans, are likely the reasons for the gradual decline in the number and portion of buyers using the loans.
“Credit continues to be an issue for buyers, especially first-time home buyers,” said Gene Lentz, president of the Silicon Valley Association of Realtors. “Recent proposals to change the mortgage finance rules are troublesome and would make it even more difficult for first-time buyers to purchase a home.”
Lentz referred to residential mortgage proposals recently released by banking, securities and housing regulators and the Department of Housing and Urban Development that suggest buyers who can afford a minimum 20 percent down payment on a conventional loan would be able to get the best interest rates and terms.
While FHA loans as a share of all home purchase loans have declined, DataQuick reports the share of VA loans (Department of Veterans Affairs), another type of government-insured home purchase mortgage, has increased slightly from a year ago in the combined 20-market area. VA loans represented 6.4 percent of all home purchase loans made in February, up from 5.5 percent last year. The share of VA loans, which do not require a down payment if certain conditions are met, peaked at 6.7 percent in December 2010. Among the 20 metro areas, the percentage of purchase loans that were VA was highest in Honolulu (18.9 percent) and San Diego (15.3 percent), but lowest in the San Jose metro area (0.9 percent), New York (1.1 percent) and Los Angeles/Orange counties (2.4 percent).