FHA: Touted as Lifeline, May Need Lifeline

Published: Friday, October 9, 2009 12:36 PM PDT

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It's been a year since the federal government bailed out mortgage giants Freddie Mac and Fannie Mae, assuming more direct control of the companies' day-to-day operation and pumping in funding to absorb their losses.

Now there are growing concerns about the Federal Housing Administration -- the issuer of low-down-payment FHA loans that have buoyed the market since the subprime collapse in 2007.

The mounting questions about the agency's health came to a head Thursday in a hearing on Capitol Hill. Here's The New York Times's accounting of the debate:

[T]he F.H.A. commissioner, David H. Stevens, assured lawmakers that his agency would not need a bailout and that it was managing its risks.

But he acknowledged that some 20 percent of F.H.A. loans insured last year -- and as many as 24 percent of those from 2007 -- faced serious problems including foreclosure, offering a preview of a forthcoming audit of the agency's finances.

That's a rosier picture than critics have:

"It appears destined for a taxpayer bailout in the next 24 to 36 months," Edward Pinto, a former Fannie Mae executive, said in testimony prepared for the hearing. Mr. Pinto, who was the chief credit officer from 1987 to 1989 for Fannie Mae, went further than most housing analysts and predicted that F.H.A. losses would more than wipe out the agency’s $30 billion of cash reserves.

I've heard for a long time that FHA has garnered a much bigger piece of the loan pie here in San Diego since the subprime bust. The loans generally carry low down payment requirements -- for a loan up to $417,000, a buyer must only put 3.5 percent of the purchase price down. And even extended FHA loans for up to $697,500 only require 5 percent down.

I called Andrew LePage at MDA DataQuick this morning to get the official numbers. Here's how the FHA market share has grown (hold on to your hats):

In August 2007, 0.8 percent of the homes that were purchased with a mortgage in San Diego County used FHA loans.

In August 2008, that share had grown to 21.2 percent.

By August 2009, that FHA share was even larger at 28.2 percent of the homes purchased with loans.

San Diego has far from the heaviest concentration of FHA loans. The average across six Southern California counties was 37.3 percent in August, and in Riverside County, 49.1 percent of the homes bought with a mortgage used FHA loans, LePage said.

-- KELLY BENNETT

1 Comments so far on this story...

The loan limits themselves limited the use of FHA financing in the past several years. Now that values have fallen, of course the FHA numbers have grown. The huge runup in sales prices prevented anyone from even considering FHA financing and in light of that, other, riskier financing stepped into that void - 100% financing with a 1st and 2nd to avoid PMI, neg-am loans etc. Had FHA financing been available (at higher loan limits), with the usual qualifications required of such financing, we would probably be in a much better place today than we are or have been in the last 18 months. In fairness, the percentage-of-usedat from previous years when property values allowed for FHA financing should be given to present a more "relative" picture.

Posted by Pat Russiano | reply to this comment
October 12, 2009 11:16 am

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