WASHINGTON – Sept. 2, 2015 – Reduced FHA insurance fees have been credited with giving lending a boost – and observers now believe they also could give the agency a competitive advantage in attracting first-time buyers and others with low credit scores.
The number of FHA-endorsed purchase loans ballooned about 116 percent, to almost 80,000, from February to June, largely due to the 50-basis point decrease in its insurance premium to 1.35 percent in January. Meanwhile, the percentage of FHA loans to new homeowners has held steady at about 82 percent.
Lenders say borrowers with credit scores of about 720 seek out conventional mortgages, while those with lower scores turn to FHA, which does not impose “loan level price adjustments” like Fannie Mae and Freddie Mac do.
“If you asked any housing or mortgage banking expert a year ago if they saw FHA doubling volume, I don’t think anyone would have said yes,” says Mortgage Bankers Association Chairman Bill Cosgrove.
During the year-over-year period that ended in June, FHA endorsements of single-family loans climbed 85 percent to 128,495. Aside from the boost in demand due to the premium reduction, Cosgrove says the increase signals that more first-time buyers are entering the market.
Source: American Banker (08/26/15) Collins, Brian
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