Cut in FHA Premium Reportedly Encourages First-time Buyers

May 22, 2015 in Consumer Report, Consumer Reports, FHA, First-time Buyers, Housing Markets, Lending Standards, Market Analysis 1 Comment

The January reduction in FHA mortgage insurance premiums increased the first-time homebuyer share of April closings by three points, according to one survey of Realtors, while NAR’s Realtor Confidence Index said the first-timer market share has remained unchanged for months due to difficulties getting financing.

The First-time homebuyer share rose to 37.6 percent of home purchases in April, up from a 34.3 percent share a year ago, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey. The last time the survey’s first-time homebuyer share of home purchases was above 37.6 percent was in August 2010 when it was 40.0 percent

“Cheap FHA financing looks like it’s making first-time homebuyers come out in force,” said Tom Popik, research director for Campbell Surveys. He noted that in January the Obama administration reduced the annual mortgage insurance premium for FHA mortgages by 50 basis points to 85 basis points.

Popik said some 42.2 percent of purchases by first-time homebuyers in April used an FHA mortgage, up from a low of 34.2 percent as recently as last September. FHA financing for first-time homebuyers has taken market share from the government-sponsored enterprises and the Department of Veterans Affairs in recent months.

NAR’s survey of Realtors did not register the same uptick from the FHA MIP cut. First-time homebuyers continued made up 30 percent of existing home sales in April 2015, substantially unchanged from last month’s level of 30 percent and up slightly from 29 percent in April 2014.

Realtors in the NAR survey reported a severe inventory shortage in most areas, especially for properties in the lower price range and for those that are move-in ready. They also first-time homebuyers find it hard to obtain a mortgage under tight underwriting standards, particularly in relation to credit score and debt-to-income standards.

Lending standards for purchase loans remain stuck in neutral, according to Ellie Mae’s April report. Average FICOS for FHA purchase loans are virtually the same level as there were in April 2014, 681. LTVs and DTI are also virtually unchanged. For closed conventional loans, average FICOS were 756, only three points lower than they were in 2013.

Both the Campbell and NAR reports are based on monthly surveys of about 2000 Realtors.