Defaults on FHA Mortgages Pass 9 Percent
The default rate in the single-family FHA portfolio reached 9.12% in Q409, climbing from 6.82% in Q408, according to the Federal Housing Administration December monthly report. The total number of FHA-insured single-family mortgages in default reached 531,671 in Q409, a 66% increase from 319,741 in Q408. In that same period, modifications on FHA-backed loans increased 54% to 23,973 in Q409. At the American Securitization Forum, Margaret Burns, director of single-family development for FHA said the 2009 portfolio is “solid,” and reiterated the FHA is not taking huge losses that eat into the reserve account. “Everything is in good shape at FHA,” she said. At the start of December, Shaun Donovan, secretary for the US Department of Housing and Urban Development (HUD) told lawmakers that FHA is “not the next subprime” despite the growing default rate. By the end of 2009, the FHA insured $752.6bn in single-family mortgages. That number jumped 24.4% from 2008, a sign that not only is the origination market condensing toward FHA but so is the risk. In November 2009, 40% of homes purchased used a FHA-insured mortgage, according to a survey from the National Association of Realtors (NAR). Linda Simmons, the general manager of mortgage finance at Overture Technologies told HousingWire that originators are developing products that fit the FHA mold. “The investors are insisting on no surprises at closing, no surprises at delivery and are doing loan-level audits, which we’ve never seen before. Intuitively, this mortgage industry is very self-correcting, and my guess is what they’re doing is developing products that are mores suited to this kind of process,” Simmons said. She added that the market for first-time homebuyers who do not qualify for FHA is not insignificant. She sees some of those borrowers going to small and mid-size lenders, who keep those loans on the their books. Write to Jon Prior.