High LTV FHA Loans Are Helping To Stabilize Purchase Market

 http://mortgage.freedomblogging.com/2008/11/10/oc-home-buyers-tap-fha-financing/2825/

FHA% for homebuyers

Month	OC-LA	U.S.
August ‘08	18.5%	28.6%
July ‘08	18.8%	27.2%
June ‘08	14.4%	23.2%
August ‘07	2.3%	9.5%

Brokers say many buyers are taking advantage of FHA, which allows for down payments as low as 3% of the purchase price. That 3% can be a gift from a relative.

First American LoanPeformance ran some numbers for me for Orange County-Los Angeles (they didn’t have just O.C.), estimating that 18.5% of buyers used FHA in August (the most recent data available when I called). That was down slightly from 18.8% in July, but up big from 2.3% in August ‘07.

Nationally, FHA was even more popular with 28.6% of August buyers using the program, up from 27.2% in July and 9.5% in August ‘07.

The Census Bureau recently released FHA data for new home sales. That showed buyers used FHA financing 17% of the time in Q3, up from 15% in Q2 and 4% in Q3 2007.

One bit of rain on the FHA parade was the end of Downpayment Assistance Programs on Oct. 1. DAPs, as they are known, allowed the seller to provide the buyer with the downpayment.

“Data clearly demonstrates that FHA loans made to borrowers relying on seller-funded downpayment assistance go to foreclosure at three times the rate of loans made to borrowers who make their own downpayments,” Montgomery said at a National Press Club event.

Such loans are currently one-third of the government agency’s portfolio, he added, and led the agency to book an additional $4.6 billion in unanticipated long-term losses in an annual re-estimate.

“No insurance company can sustain that amount of additional costs year after year and still survive,” he argued. “Unless we take action to mitigate these losses, FHA will soon either have to shut down or rely on appropriations to operate.”

For anyone who doesn’t know the basics on FHA, it is an insurance program protecting lenders and note-holders against loss in case the borrower doesn’t pay. Consumers who get FHA loans pay a premium, which goes into a pool that covers losses on loans.

And as for Uncle Sam’s help boosting the O.C. housing market, let’s not forget the government now owns mortgage giants Fannie Mae and Freddie Mac. I have heard the government is either buying or insuring 90% of the loans made in this country. That may be a little high, but not by much.