Market Conditions: Percentage of FHA Loans in Chicago Area Falls in 2010 As Lending Tightens
Crain’s is reporting that the percentage of FHA loans fell 36% in 2010 from the year before in the Chicago area as lending standards tightened.
In 2010, 12% of all Chicago-area home loans were FHA which was down from 18% in 2009. This is still a dramatic increase from the bubble years when FHA loans accounted for only 2% of all loans.
(And no- I don’t know why we are only now talking about 2010 data when it is nearly the end of 2011.)
FHA loan originations may have dropped last year because mortgage activity over the past two years has been dominated by refinancing, said Guy Cecala, CEO and publisher of Bethesda, Md.-based Inside Mortgage Finance Publications Inc., a trade publishing company.
“FHA doesn’t benefit as much from the refinance market,” he said. “Those loans are primarily for home purchases.”
Another reason the number may have dropped, he said, is that the minimum down payment required for the loans increased to 3.5% from 2% two years ago.
Still, the greatest lure for using an FHA loan is the low downpayment requirement. As we have chattered about numerous times, younger home buyers simply cannot easily save up the 10% or 20% down payment.
As with conventional loans, FHA lenders are scrutinizing personal financial documents more closely. When newlyweds Dustin and Melissa Landgraf bought a single-family home in Bloomingdale last month for just under $200,000 with an FHA loan, they had to provide bank statements and copies of checks they received as wedding gifts, said the loan officer who handled their mortgage, Tim Corr, vice-president of mortgage lending at Guaranteed Rate.
“They (underwriters) see large deposits going in your bank account and want to know where it’s coming from,” Mr. Corr said.
The Landgrafs were able to put down just 3.5% and get a 30-year fixed-rate mortgage with a low interest rate of 3.75%. The couple, who got married in September, isn’t able to save a lot of money each month in part because of student loans, Ms. Landgraf said, so putting money aside for a 20% down payment would have taken years.
“If we had to go the conventional route, we wouldn’t own a house right now,” she said.
But with Chicago area home prices continuing to fall, it doesn’t take long before a homebuyer who put down 3.5% is underwater.
Delinquencies on FHA loans have remained fairly constant in the past five years. Though no metro-level data were available, 15.3% of FHA mortgages in Illinois were past-due in the third quarter, according to the Mortgage Bankers Assn., compared with 15.5% in the year-earlier period and 15.1% in the third quarter of 2006. not 2009?
By comparison, the past-due rate for all mortgages in Illinois was 8.5% in the third quarter of this year, compared with 9.8% in the same period last year.
Are today’s FHA loans a disaster waiting to happen in just a few years time?
FHA loans plummet in the Chicago area [Crain’s Chicago Business, Mary E. Morrison, December 1, 2011]
