Ed Pinto writes January 16 from the American Enterprise Institute:

FHA’s mounting delinquencies pose a growing risk to the taxpayers.

Equally ominous is that “FHA Wants Lenders to Relax Credit Scores.”[1]  

 Implementing such a policy for credit impaired borrowers without corresponding offsets to FHA’s risky layered underwriting standards would “represent a disservice to American families and communities.” 2  

In future releases the impact of FHA’s growing 60 days-plus delinquency category on its estimated loss reserve and current insolvency will be examined.  Also to be covered will be how to prevent FHA lending from being a disservice to American families and communities.  

Best,

Edward Pinto

Resident Fellow

American Enterprise Institute

240-423-2848

[1] National Mortgage News, January 10, 2012

[2] HUD notice of proposed rulemaking, http://www.federalregister.gov/articles/2010/07/15/2010-17326/federal-housing-administration-risk-management-initiatives-reduction-of-seller-concessions-and-new#p-31

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Breaking news: FHA’s total delinquency rate nears 18% in December:

FHA’s thirty-day plus delinquency rate continued its upward climb in December 2011, increasing to 17.79% and now accounts for well over 1 in 6 outstanding FHA loans.  FHA’s delinquency rate continues to climb as a result of a number of factors:

1.       While delinquencies from its pre-2009 books continue to default at extremely high levels, loans from its massive 2009 and 2010 books are now becoming more seasoned and as a result are beginning to enter their peak years of high delinquency.  Nearly ¾ of FHA’s guaranty book dates from post 2008.

2.       Compounding the impact of seasoning, 25-30% of the 2009, 2010, and 2011 books consist of extremely high risk loans that will help keep FHA’s delinquency rate elevated. 

3.       After tripling its risk-in-force from 2007 to 2010, FHA’s insurance book is now growing a 9% annualized rate.  While this is still healthy growth, it is now only a minor depressant on FHA’s delinquency rate. 

4.       Delays in moving loans from “in foreclosure” status to claim continue to plague FHA.

5.       Home prices continue to decline, helping to keep delinquencies growing.

FHA’s burgeoning delinquencies:

FHA’s 30 days-plus delinquency rate has increased from 16.62% in June to 17.49% in December.  Over the same period the delinquent loan total has increased by 151,000 with most of the increase occurring in the serious delinquency category. 

Lender Processing Services reports that the serious delinquency rate for all loan types actually declined slightly from June 2011 (7.75%) to November 2011 (7.72%).  During the same period FHA’s serious delinquency rate soared from 8.34% to 9.46%. (http://www.lpsvcs.com/LPSCorporateInformation/CommunicationCenter/PressResources/Pages/MortgageMonitor.aspx)    

Source for FHA delinquency data: HUD Neighborhood Watch, Excel download