As the Federal Housing Administration celebrates its 80th anniversary, the big banks are debating ending their lending relationships with the administration.
After attending a panel discussion for the FHA at the White House on Friday, National Association of Realtors President Steve Brown spoke highly of the FHA to HousingWire saying, “The housing market and overall economy benefits from the program. It not only brought to the market buyers who can now buy homes, but it also has brought many jobs. It is because of this financial program that the economy revived.”
But despite NAR’s positive outlook, this second-quarter earnings season is shaping up to show that the big banks do not feel the same way.
JPMorgan Chase (JPM) CEO Jamie Dimon was quoted in a Bloomberg article, “He questioned whether his bank should end its decades-old relationship with the Federal Housing Administration, a last resort for lower-income Americans seeking mortgages.”
The problem: “These guys continue to lose market share to the smaller guys because the smaller guys are able to take more risk and the bigger guys keep giving cookie cutter mortgages,” FBR Capital Markets Managing Director Paul Miller said.
Currently, the nation’s largest two originators made 21% of home loans in the second quarter, the smallest combined share in more than a decade, down from 30% a year ago.
Instead, nonbanks are swooping in and grabbing the extra market share.
However, Brown noted, “I think that is a very bad trend, if it is a trend. You are clearly eliminating very clearly qualified borrowers from the opportunity of buying a home. The major obstacle for borrowers is accumulating enough money to make the down payment. The FHA is the only one with a 3.5% down payment. It would significantly hurt the down payment market.”
For the NAR president, the FHA has and will continue to be a part of his own business. “It became a huge part during the Great Recession, with 50% to 60% of my mortgage business in FHA-backed loans.”
Brown instead directed attention to the need for revision in the mortgage insurance program. Right now the mortgage insurance premium is required for the life of a loan. “We would like to see that when there is equity in the property the premium would go away. In some ways, that is a wonderful thing to encourage borrowers to make advance principle payments,” he said.