Selling hope, delivering harm 

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June 2012

 

 

This Issue’s Highlight

FHA is responsible for 1.5 million new underwater loans: The Federal Reserve estimates that about one-third of the 11.1 million underwater home loans in the United States are insured by the Federal Housing Administration (FHA). These 3.6 million underwater FHA loans account for nearly half of the FHA’s 7.4 million outstanding loans. Since about 72 percent of all outstanding FHA loans date from 2009 or later, a reasonable estimate would be that about 1.5 million of recent FHA borrowers are underwater.

This comes as no surprise since the FHA continues to combine minimal down payments (average of 4 percent) with slowly amortizing thirty-year loan terms. As a result, earned homeowner equity (the combination of down payment and scheduled loan amortization) amounts to less than 10 percent after four years, or about enough to sell a home at the break-even point if home prices stay steady. However, prices have declined nationally about 7 percent since mid-2009, with lower-priced homes declining even more. When combined with borrowers’ low FICO scores and high debt-to-income (DTI) ratios, the result is a continuation of the FHA’s destructive lending—lending that has resulted in 20–25 percent of recent borrowers facing a 10 percent or greater likelihood of foreclosure.

The month’s features:

Spotlight on insolvency
FHA’s Position Worsened in May, with an Estimated Current Net Worth of –$22.11 Billion and a Capital Shortfall of $41–61 Billion

Spotlight on delinquency
Total Delinquency Rate Increased in May to 16.23 Percent Because of Increase in Both Thirty- and Sixty-Day Delinquencies; Serious Delinquency Rate Ticked Up to 9.43 Percent

Spotlight on underwater loans
FHA Is Responsible for 1.5 Million New Underwater Loans

Spotlight on best price execution
The Government Mortgage Complex’s Ginnie Brands Demonstrate Continued Pricing Dominance over Fannie Mae

The road map to FHA reform
Specific Steps to Reform and the Status of Each

Home FHA Watch June 2012