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VOL. 123 | NO. 252 | Friday, December 26, 2008

FHA Loans Take Lion’s Share of Mortgage Activity

By Eric Smith

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As the mortgage industry closes the book on an abysmal year, it can thank the Federal Housing Administration for being one of the few bright spots of 2008.

Through Oct. 31, home loans insured by FHA in Shelby County increased 226 percent – twice the national average – compared to last year. Also, they accounted for 28.9 percent of all mortgages as lenders reacted to the subprime fallout of 2007-2008.

Of the 9,030 loans made through October, 2,605 of them were FHA, according to the most recent data from real estate information company Chandler Reports, www.chandlerreports.com. Those statistics indicate a huge decrease in loan activity but an increase in FHA percentage from 2007’s mortgage numbers, which totaled 13,704 loans; among those, 800 – or 5.9 percent – came from FHA.

Chris Bowers, mortgage loan officer at Bank of America and immediate past president of the Memphis Mortgage Bankers

Association, said the increase in FHA loans during 2008 met a demand as subprime products disappeared from the market.

“The FHA loan programs have filled a gap for those people that traditionally would have gone to a subprime mortgage loan, even if they were qualified for a better loan program,” he said. “And FHA is certainly a quality loan program for first-time homebuyers and those with less-than-perfect credit.”

The one and only

“Access for first-time homebuyers and even that first-time, move-up buyer is going to be there, and I think (FHA) is going to continue to be a strong part of
overall mortgage origination in 2009.”
– Chris Bowers
Mortgage loan officer, Bank of America

FHA loans accounted for a much higher percentage of mortgage activity in each month of 2008 compared to the same month the prior year. The highest rate of FHA loans came in September when 382 of 863 mortgages – or 44.3 percent – were FHA. That marked a 297.9 percent increase in FHA loans from September 2007.

The rise of FHA in 2008 can be attributed to a number of reasons. First, the limit on FHA loans rose to $271,050, well beyond Shelby County’s most recent average sales price of $174,048 (the year-to-date figure for 2008, according to Chandler Reports).

Second, FHA allowed sellers to pay 6 percent toward closing costs, which isn’t possible on a conventional product with a higher loan-to-value ratio.

Third, Fannie Mae and Freddie Mac in late 2007 implemented loan-level price adjustments, which established a mortgage’s interest rate according to credit score. That raised the price of their loans for some borrowers.

Last, private mortgage insurance (PMI) companies steadily backed away from insuring 100 percent conventional loans, making that product more difficult to obtain. So FHA has been the only option for some applicants.

Michael Wiegert

“I think it’s been a good thing. It’s a great loan product,” said Michael Wiegert, vice president and mortgage production manager at Renasant Bank, and a past MMBA president. “It’s a product a lot of people should have been on last year and the year before when in fact they were being given subprime loans. There have been studies done that show that many of the people that got subprime loans could have qualified for an FHA loan if they’d gone to the right lender.”

Not going anywhere

What’s more, FHA loans are expected to increase in 2009, according to the national Mortgage Bankers Association and local mortgage lenders.

West Beibers

“It’s hard for me to fathom a situation where we would see FHA lose market share to conventional right now,” said West Beibers, president of Cordova-based Delta Trust Mortgage Corp. “I don’t want to say FHA is the only game in town, but it’s the big game in town at this point simply as a result of changes in policy taking place at Fannie Mae and also with the mortgage insurance companies.”

Some changes are coming to FHA in 2009, most notably the down payment increase from 3 percent to 3.5 percent. As of now, the FHA loan cap remains $271,050, which means the purchase price for a home loan insured by FHA can be up to about $279,000.

“Access for first-time homebuyers and even that first-time, move-up buyer is going to be there,” Bowers said, “and I think is going to continue to be a strong part of overall mortgage origination in 2009.”

Chandler Reports is a division of The Daily News Publishing Co.

PROPERTY SALES 124 481 17,865
MORTGAGES 127 530 20,565
BUILDING PERMITS 195 891 36,836
BANKRUPTCIES 52 262 11,426