Loan Modification

FHA Mortgage Activity Dives in April

By Peter G. Miller

FHA mortgage volume fell substantially in April, news that was easy to call. As I wrote:

“The federal government’s tax credit for first-time homebuyers is now over and done, a program that largely ended April 30. The result is that a housing market that had begun to stabilize will now be set back as demand wanes, meaning that prices will soften. For buyers and investors the good news is that there will be less competition for short sales and foreclosures.

“The tax credit was worth as much as $8,000 for first-time buyers who purchased before April 30, 2010, however members of the military serving overseas were given until April 30, 2011 to qualify. In addition, there was a provision giving a $6,500 credit to home sellers.” (See: Are We Headed For A New Real Estate Decline?)

For April, HUD says the government received 215,578 FHA mortgage applications — that’s a big number but it’s also a number that’s down 23.1 percent from April 2009. Endorsements didn’t fare any better: 126,316 FHA mortgages were approved, a drop of 22.2 percent from a year ago.

Amazingly enough the numbers for FHA loans may actually be better than those for the private sector.

Market Share?

The Mortgage Bankers Association has an April forecast which says that home mortgages worth $1.3 trillion will be originated for properties with from one to four units in 2010. That’s down 38 percent from $2.1 trillion in new home loans in 2009.

In other words, the mortgage marketplace is contracting faster than the demand for FHA loans. If this is correct, then FHA market share will actually increase this year.

The Good News?

If you want to have a good argument chat with the folks who think the FHA program is somehow an unfair extension of government power into the private sector. They will be elated with the fall in FHA loan origination numbers — but very unhappy with the thought that FHA market share might increase.

The reality is that we are ending the tax credit at a time when the housing market is weak — as in not out of the woods. In some local markets foreclosures and short sales represent much of the market, with the impact on home values that one would expect.

The Federal Housing Finance Agency?s monthly House Price Index for February, the latest month for which we have data, shows that for “the 12 months ending in February, U.S. prices fell 3.4 percent. The U.S. index is 13.3 percent below its April 2007 peak.”

We’re not going to have a housing comeback until we get rid of the surplus inventory of unsold homes which now dominate most local markets. The states of California, Florida, Nevada, Arizona, Michigan and Illinois will not recover until massive numbers of foreclosures are removed from the marketplace.

Looking at the overall condition of the economy and the housing situation, the tax credit program ended too early –and that’s a part of the reason why we now have fewer loans, FHA and otherwise.

Full post as published by FHA Mortgage Guide on May 24, 2010 (boomark / email).