FHA fundings will decline again in fiscal 2014 and are projected to continue to drop to their lowest levels since 2004. HUD forecasted 2014 FHA fundings at $191 Billion. Actual fundings came in at $134 Billion, down 30% from initial projections.
HUD independent auditors project fundings dropping again in 2015 to $124 Billion and again to $113 Billion in fiscal year 2016.
Why? FHA’s insurance premiums are at their highest point ever. The recent increases in FHA insurance can cost a home buyer between $200 and $400 more per month more than ever before.
Concerned industry advocates, including the National Association of Realtors and the Mortgage Bankers Association are appealing to legislators to agree to immediately lower FHA premiums. They cite tens of thousands of potential homebuyers are being priced out of the housing market.
Congress is reticent to do so, noting that although there has been significant financial improvement at HUD, their statutory required capital ratio of 2% will not be fully met until late 2016.
So, we now find FHA loans being adversely selected by borrowers who don’t quality for high ratio, lower cost Fannie and Freddie loan programs, which carry more stringent credit requirements than does FHA.
What effect do you think this phenomena will have on the FHA insurance fund going forward? Adverse selection is never good and is usually the precursor of a negative experience.
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