FHA Loan Share Surged in 2009

September 21, 2010 No Comments »


FHA lending surged last year, according to a report from the Federal Financial Institutions Examination Council (FFIEC).

The report, which relied on Home Mortgage Disclosure Act (HMDA) data from nearly 15 million home loan applications (which resulted in nearly nine million loan originations), found that FHA loans accounted for 37 percent of all first mortgages in 2009.

That’s up from 26 percent in 2008 and just seven percent in 2007.

FHA Lending Replaced Subprime

It’s long been known that FHA lending essentially picked up where subprime lending left off, though the quality of loans is much better than subprime.

In fact, the average credit score on FHA loans has actually increased in recent years because more creditworthy borrowers are opting for the government-backed loans thanks to their low down payment requirements and relatively easy underwriting guidelines.

Changes Coming to FHA Loan Program Next Month

However, come October 4, borrowers with Fico scores below 580 will need to bring in at least a 10 percent down payment, while those with credit scores below 500 will be out of luck entirely.

And mortgage insurance premiums will also rise, though upfront costs will fall, keeping the loans attractive to low-income borrowers.

VA loans also surged in popularity, with the veteran loans grabbing a 6.7 percent share in 2009, up from 4.9 percent a year earlier and 2.7 percent in 2007.

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