FHA Sinks Deeper

FHA’s share of home-purchase financing fell to its lowest level in at least five years in September, according to the latest Campbell/Inside Mortgage Finance HousingPulse Tracking Survey of real estate professionals.

Mortgages guaranteed by the FHA accounted for financing on 18.2 percent of home purchases in September, based on a three-month moving average. That’s the lowest market share for the FHA since 2009 and the height of the mortgage crisis in the Campbell survey.  FHA’s share of home-purchase financing has declined fairly steadily since September 2011, when the loans accounted for financing on 29.4 percent of home purchases. By September 2013, FHA share of home-purchase financing had slipped to 21.9 percent.

FHA’s market share as measured by Ellie Mae’s origination platform fell to 19 percent in 2012 and in August was at only 20 percent of the market in August, the most recent Ellie Mae report, which is derived from approximately three million loan applications, or 20 percent of all U.S. mortgage originations.

High fees on FHA mortgages have prompted buyers that can qualify for financing from other sources to shift to mortgages from Fannie Mae and Freddie Mac as well as other outlets, said the Campbell report.

The Department of Housing and Urban Development has significantly increased fees on FHA mortgages in recent years in an effort to boost the health of the agency’s mortgage insurance fund. Higher fees and the overall economic recovery have helped improve the health of the FHA, prompting mortgage and real-estate trade groups to push for HUD to start lowering the FHA’s annual mortgage insurance premiums along with elimination of the requirement that mortgage insurance be kept in place for the life of the loan.

HUD has resisted, prompting the FHA to cede market share to Fannie Mae, Freddie Mac and the Veterans Administration, among other home-purchase financing sources.  Fannie and Freddie accounted for a combined 18.7 percent share of financing for home purchases in September, up from a 13.7 percent share in September 2011. And the VA share of home purchase financing has increased in that time from 5.0 percent to 8.1 percent.

Private mortgage insurance companies have reduced their prices, making GSE mortgages with down payments of less than 20 percent more attractive than pricing on FHA mortgages. And VA mortgages generally offer lower payments compared to FHA financing along with no down payment requirement, for those who qualify.

Meanwhile, mortgage-financing delays are increasingly common across product types, according to exclusive data from HousingPulse. Some 58.3 percent of delayed closings of home purchases in September were caused by mortgage-related issues, based on a three-month moving average, up from a 50.7 percent share as recently as March.

The Campbell/Inside Mortgage Finance HousingPulse Tracking Survey involves approximately 2,000 real estate agents nationwide each month and provides up-to-date intelligence on home sales and mortgage usage patterns.