Government-Insured Share of Mortgage Apps Tripled in the Past Year
|August 19, 2008
The government-insured share of mortgage applications tripled in the past year according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. Of all mortgage applications accepted during the month of July 2008, 29.1 percent were for government-insured loans (consisting of mostly FHA loans) compared to 8.4 percent in July 2007.
The government-insured share has been increasing since February 2007 and only since the beginning of this year has the share exhibited significant increases; up from 9.4 percent in January. Since the MBA survey’s inception in January 1990, the lowest recorded share was 5.8 percent in August 2005 and the highest was 43.8 percent in February 1990.
There are several reasons why government-insured loans, specifically FHA, have an increased presence in the market:
- In March of this year, the Economic Stimulus Act of 2008 temporarily raised the FHA and conforming loan limits for most areas in the country, which broadened FHA financing for more borrowers. The passage of the Housing Bill in July 2008 made these higher loan limits permanent.
- Data from the U.S. Department of Housing and Urban Development (HUD) show that the level of conventional to FHA refinance applications has increased 317 percent on a year over year basis in July, the bulk of which is likely from subprime ARM products. Similarly, the level of conventional to FHA refinance endorsements has increased 260.8 percent on a year over year basis. Based on the MBA survey, application volume for government-insured loans was up 133.9 percent in July from a year ago, while application volume for conventional loans was down 50.2 percent, evidence of a shift from conventional to government-insured mortgages.
- FHA loans typically have lower down payments than those offered by Fannie Mae and Freddie Mac. Generally the maximum loan to value (LTV) ratio for FHA loans is 97 percent and 95 percent for the Government Sponsored Enterprises (GSEs).
- Conventional GSE loans typically have higher credit score requirements than FHA loans.
- The higher application and endorsement activity for government-insured loans highlights the need for FHA modernization.