The Federal Housing Administration (FHA) recently submitted its annual report to Congress for fiscal year 2017. It discussed, among other things, the financial status of the mutual mortgage insurance fund and highlights on its single-family forward mortgages or FHA loans as they are known to all.
FHA loans have been around since 1934 at the time when America was primarily a nation of renters. It would thus be interesting to see how far FHA loans in 2017 have gone. What are the characteristics of today’s FHA borrowers and the loans made to them?
The Fiscal Year That Was: FHA Loans in 2017
According to the FHA, its footprint in the housing market remains substantial. The agency recognized that after reaching its post-crisis peak in 2009, its share in the loans market has declined primarily due to mortgage insurance hikes. It took a substantial MIP reduction in January 2015 to renew the market’s interest in its purchase and refinance loans.
In FY 2017, the FHA endorsed 1,246,440 forward mortgages with a total unpaid principal balance of $251 billion.
What follows is a breakdown of FHA borrower/loan characteristics per the FY 2017 report.
Purchase vs Refinance
Out of the 1.2 million mortgages endorsed in FY 2017, 882,079 were for buying a home.
What’s interesting is that 725,233 or 82.2% of the purchase loans above were made to first-time homebuyers.
Out of the total $251 billion unpaid balance of new endorsed loans, $28.6 billion went to homeowners who refinanced to take cash out of their homes.
Cash-out loans represented 38.9% of the total refinance volume. Moreover, $16.8 billion of cash-out refinances involved refinancing from conventional loans to FHA loans.
Credit scores of borrowers taking out FHA loans averaged 676 in FY 2017, down from 680 in FY 2016.
Credit scores for purchase and refinance (conventional-to-FHA) did not vary substantially but they tend to be lower on FHA-to-FHA refinances.
The minimum credit score to qualify for the FHA’s 3.5% down payment is 580 but FHA-approved lenders vary so scores can go higher than 580.
The FHA revealed that the debt-to-income ratios for FHA purchase loans averaged 41.9% and they have been on the rise since FY 2000.
Almost 50% of FHA purchase loans had DTI ratios greater than 43%. Moreover, borrowers with ratios above 50% reached an all-time high in FY 2017.
Down Payment Assistance
FHA loans are known for their down payments as low as 3.5%. These down payments can be partly funded through down payment assistance (DPA) programs available in states, counties and municipalities.
And in FY 2017, the percentage of FHA loans with DPA was 38.4%.
The FHA notes that early default rates or loans with one missed payment remain relatively stable at 0.50% during the relevant fiscal year.
Serious delinquency rates on loans with 90 days + more past due payments also continue to decline to 4.32% in FY 2017 from 4.92% a year ago.
The current annual report is a gold mine of information about the single-family loan performance the past fiscal year. It’s nice to note that FHA loans continue to be relevant to today’s consumers especially first-time homebuyers.Click to See the Latest Mortgage Rates»