The FHA insures loans and does not lend money. It requires just 3.5 percent for down payment, plus an upfront and annual premium. During the housing crash, it was the only low-down-payment loan available and is credited with saving overall home sales and assisting struggling borrowers to refinance into lower monthly payments. That, however, came at a price. The FHA’s insurance reserves fell below the statutory mandate in 2013 and needed a $1.7 billion infusion from the U.S. Treasury.
The outgoing Obama Administration made a move that would pass along modest savings to working families; a cut in the annual mortgage insurance premium on government-insured FHA loans. With FHA reserves recovered and on stronger footing, however, incoming President Trump froze the move that could have saved some lower-income borrowers money, prompting criticism that it was too cautious and burdensome.
Now, for the first time since Q1 2013, mortgage delinquencies rose quarter-on-quarter in Q4. The jump followed the lowest delinquency rate since 1997 and was driven by loans made since 2014 and early-stage delinquencies, those just 30 days past due.
This could be a troublesome signal that could put taxpayers at risk. This is most certainly something to keep an eye on; especially with banks getting loose on lending.
Now, the Trump administration will have to weigh the risks to the FHA portfolio against the weakening affordability in the housing market overall.
Young, first-time buyers have largely been sidelined in the housing recovery (yes, even with many using down payment assistance programs), burdened by higher costs, tight credit and high levels of student debt. Home ownership is sitting at the lowest rate in 50 years.
The incoming secretary will have to find a balance between getting insurance premiums priced appropriately and to provide access to home ownership — but also to protect the taxpayers.
FHA delinquencies are still relatively low overall, and the cause of the spike is impossible to know for sure without more data.
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