FHA 3 of 4 purchases were by first-time home buyers- Benefiting the Bay area housing market

Logo of the Federal Housing Administration.
Image via Wikipedia

FHA released its October Single Family Outlook report and it contains some interesting statistics. Here are the highlights:

75% of purchases funded were completed by first-time home buyers.

This is the silver lining of the housing crisis. Thanks to low FHA mortgage interest rates and plunging home prices, buying a home is more affordable than ever. This bodes well for the future of working and middle class families, who make more use of home ownership as a vehicle for wealth-building than do their more affluent counterparts.

46% of refinance applications were non-FHA to FHA refinances.

This means that it was either too difficult or too expensive for many homeowners to refinance conventional mortgages with non-government loans. So despite the fact that FHA mortgages require both upfront and monthly mortgage insurance premiums on all loans, it was apparently more cost effective for many applicants to choose an FHA refinance over a conventional one. Reasons for this would include the imposition of risk-based surcharges by Fannie Mae and Freddie Mac on all but the most perfect refinance candidates. These fees can add thousands of dollars to the cost of a mortgage refinance. Other causes would include the erosion of home equity across the country and the difficulty of getting conventional mortgage insurance when the loan-to-values exceed 80%. FHA’s3.5% home equity requirement facilitates refinancing in these declining markets.

The average FICO score of FHA borrowers now exceeds 700

Last month it was 702, the highest ever. So while the scores of the population as a whole have declined as economic troubles mount, those of FHA borrowers have increased. This is likely the combination of several factors — the drop in home values forcing those who formerly qualified for conventional financing into FHA refinancing, the added cost of conventional financing, and the overlays of FHA lenders. Overlays are lender requirements that are more stringent than the agency’s own guidelines. Lenders impose these because even if they comply with FHA guidelines, if they have a higher than average foreclosure experience for their area, they can lose their approval. So as the guidelines tighten, the average percentage of defaults drops, and lender guidelines tighten more to stay ahead of that curve.

Enhanced by Zemanta
Subscribe to our daily mortgage market emails.

Have a Question?

Legal Disclaimer
Or give us a call