Wednesday, December 03, 2008

Where to get the LOAN? FHA is the BIG DOG now!

I got this from long term friend Mark is worth reading and/or visiting Mark's website.

FHA recently published their Fiscal Year 2008 Audit and based on this report the answer is very encouraging. Recently there have been two questions that many have wanted answers to. 1) Can FHA continue to handle the increase in volume? and 2) Will FHA be the next candidate for a bailout? From looking at this audit report the answers are yes to the volume and no to the bailout.

FHA has been called on to shoulder more of the responsibility for stabilizing the US Housing market. Because of this, many have been concerned that FHA will suffer the same fate as many conventional sources of loans. That is to say that FHA will be losing more then they are gaining. This audit appears to say otherwise. The audit gives an indication that FHA will be financially sound for at least the next 7 or 8 years. Now that is not to say that FHA has not been affected by the national housing downturn. But as on organization it is holding its own better then Fannie or Freddie. The audit actually shows an improvement in the overall loan characteristics over FY 2007. This could be due to the fact that many FHA lenders (Universal Lending included) have tightened their guidelines to originate a better quality loan. Another aspect is that FHA loans are being used more and more by buyers with good credit. In this report it shows that the number of buyers with credit scores over 680 using an FHA loan increased from 17% to 35% and a decrease in buyers with a credit score below 580 from 27% to 5% over that same period.

Another factor in the positive nature of this report is the improvement in the Loan-To-Value of their portfolio. Since 2005 the high LTV's (loans over 97% LTV) have been reduced from 55 to 39% and the lower LTV's (loans below 95% LTV) have increased from 20% to 34%.

So to answer the 2 questions above 1) Can FHA continue to handle the increase in volume? Over the last 15 months FHA has showed that it can handle its volume increase which is now running at 4 times the 2007 levels. Despite receiving minimal additional resources, there are two reasons why FHA can handle the volume. First, as you know, FHA approved lenders can perform all of the loan processing, underwriting, closing and insuring functions without any HUD review. Secondly, FHA?s technology, despite being 25 years old, remains resilient and fundamentally sound. With the additional resources being provided, there is now minimal concern that FHA will not be able to provide mortgage insurance certificates (MICs) in a timely manner (barring some unforeseen circumstance) even if FHA business doubled or tripled from current levels. Quite frankly, the biggest concern regarding FHA?s technology is that future changes, made with the intent of improving performance, may have the unintended consequence of impairing FHA?s performance.

2) Will FHA be the next candidate for a bailout? There was widespread concern that FHA became the ?dumping ground? for subprime loans when that market collapsed in 2007. Many press reports have been written questioning FHA?s financial strength. The FY 2008 Actuarial Review provides a current analysis of the status of the FHA program and rebuts the concern that there is a systemic problem in the program.

Now if you read the report at you will see that the overall net worth of FHA is down and this is mostly due to the drop in home prices. In addition you may have read articles such as one in Business Week that are expressing concerns about the overall financial soundness of FHA. But this report shows that FHA is still in the black and is expected to remain so for many years to come. There is much more to this report and I will be happy to send you more information about it if you would like to contact me through

Pete Doty provides 23 years of experience which can go to work for you or your friends, learning about your new home town! Whether it is Highlands Ranch, Lone Tree, Littleton, Castle Rock, Centennial, Englewood, Parker, Elizabeth, Larkspur, Franktown, Kiowa, or anywhere in metro Denver Colorado, we offer real estate advice, properties for sale, multiple listing service, property listings, mls, all available at Drop me a note to

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