According to the Mortgage Bankers Association (MBA), for the first time since 2006, FHA mortgage delinquencies jumped in the fourth quarter to 9.02% from 8.3% in the third quarter. This troublesome signal in the housing market could put taxpayers at risk.
MBA CEO David Stevens said: “We had been experiencing great credit quality for so long, and to suddenly see this quarter-over-quarter reversal was a surprise, and we’re looking closely at it.”
Moving forward, the Trump administration will have to weigh the risks to the Federal Housing Authority (FHA) portfolio. Burdened by tight credit, higher costs, and high levels of student debt, young first-time buyers have been sidelined in the housing recovery.
“When we see a blip like this, we get concerned about whether that it is a trend,” Stevens said. “And getting these premiums priced appropriately to provide access to home ownership — but also to protect the taxpayer — is that really important balance that the incoming secretary is going to have to focus on with his team to make sure we don’t put the taxpayer at risk or the program at risk — and that’s the challenge.”
The Housing and Urban Development (HUD) outgoing secretary announced plans to trim the cost just weeks before President Donald Trump took oath. These plans would have saved the borrower about an average of $500 a year and could have helped lower-income buyers and thousands more first-time buyers purchase homes.
President Donald Trump’s administration defended the sudden freeze in the FHA premium cut, saying that, “more analysis and research are deemed necessary to assess future adjustments.”
“I, too, was surprised to see something of this nature done on the way out the door. Certainly, if confirmed, I’m going to work with the FHA administrator and other experts to really examine that policy,” HUD Secretary nominee Ben Carson, said in response to a question from Sen. Patrick Toomey, R-Pa.
FHA mortgage delinquencies are still low overall, and the cause of the spike is impossible to know without more data.
Stevens said: “As we’ve seen the economy improve and home values rise, and workforce job numbers continue to improve, some lenders have been more comfortable taking off some of those overlays, not going down to the lows that FHA allows, but it has brought credit scores down. FHA had just gotten back in the black, and we were concerned about unforeseen circumstances that could occur, so it doesn’t surprise me that the Trump administration decided to act and at least slow down any look at reductions in [mortgage insurance premiums] until they really understand the portfolio.”
In 2013, the FHA insurance reserves fell below the statutory mandate and needed a $1.7 billion infusion from the Department of U.S. Treasury.
Castro said: “After four straight years of growth and with sufficient reserves on hand to meet future claims, it’s time for FHA to pass along some modest savings to working families. This is a fiscally responsible measure to price our mortgage insurance in a way that protects our insurance fund while preserving the dream of homeownership for credit-qualified borrowers.”
Daren Blomquist, senior VP at Attom Data Solutions also added: “While some states are still slogging through the remnants of the last housing crisis, the foreclosure activity increases in states such as Arizona, Colorado and Georgia are more heavily tied to loans originated since 2009 — after most of the risky lending fueling the last housing boom had stopped.”
If you have questions or just want to find out more information about the housing market, mortgage rates, mortgage programs, or any foreclosure-related information, please contact us at United Financial Counselors.