Loan Modification

FHA Volume Dives ? But Why?

By Peter G. Miller

The FHA mortgage volume figures will be out shortly but if they follow what happened in February then there should be a lot of head scratching on the home front.

During February, says HUD, there were 165,239 FHA loan applications — that’s down 26.4 percent from 2009. It follows that if loan applications are down then we will shortly see loan endorsements also fall.

It could be that the February numbers came up short because the weather was lousy in much of the country. However, offsetting the issue of blizzards and floods there is the little matter of April 5th — that’s the day when upfront mortgage insurance premiums will rise for all new FHA mortgages from 1.75 percent to 2.25 percent.

Translated into dollars, if you have a $200,000 FHA loan the up-front MIP will increase by $1,000 after April 5th — a very good reason to get an application in now, before FHA loan guidelines change and costs go up.

Or, there could be something else at work here, something which impacts both the FHA and the real estate market in general.

Foreclosures

A lot of allegedly-bright people have been saying that the housing crisis would end this year. Of course, they also said it would end last year. Some said it would end in 2008.

But now we have the first quarter foreclosure figures from RealtyTrac. Here are the main points:

___ Some 932,234 properties received foreclosure notices in the first quarter. That’s up 16 percent from the year before.

___ “Foreclosure filings were reported on 367,056 properties in March, an increase of nearly 19 percent from the previous month, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005,” according to the company.

___ Foreclosure activity is rampant in 10 states that represent more than 70 percent of all foreclosure activity.

Red Flags

What the RealtyTrac figures tell us is that the marketplace has not improved in many markets, if anything it’s gotten worse.

Waiting in the wings is more bad news. First, huge numbers of option-ARMs are set to re-cast in 2010 and 2011. This will be a financial disaster of unusual size and scope — Fitch Ratings reports that 94 percent of all option ARM borrowers have been making minimum payments. Remember, these are loans where unpaid interest is added to the mortgage debt, financing was often obtained with little or nothing down, and home values have been falling in most markets.

Second, 1.4 million homes are in various government-backed loan modification programs. They will not be foreclosed as long as the owners stick with the program. The catch? A very large number of these modifications are destined to fail.

So, the pace of FHA loan originations is down — but how could it be otherwise? The gloom of the past two years was supposed to lift, but the damage done by toxic loans and the failure to regulate lenders remains with us to this day.

Full post as published by FHA Mortgage Guide on April 19, 2010 (boomark / email).