Opinions, Comments and Information on Mortgage & Real Estate Market topics…plus some Coaching…

Recently, the FHA released some interesting stats that puzzled me even, since active legislation has been petitioning and FHA responding to possible changes increasing the monthly premiums with regard to FHA MIP…this shortly after the change in annual premium going back up to 2.25%.  I’ll try to keep it to a minimum for all of you.  There’s a lot of positive news below, which is of course why new legislation wants to rain on the parade. 

FHA believes that the combination of down payment and FICO score is an excellent predictor of loan performance.  Below is a chart FHA presented at a March 2010 Congressional Hearing.  The numbers are based on an index. Claim rates are roughly 3 times the index value.  For example, loans with FICO scores above 680 and LTVs above 95% have an ultimate claim rate of about 4.5% (1.5 x 3), which is very good.  Conversely, loans with FICO scores between 580-619 and LTVs above 95% have an ultimate claim rate of about 16.8% (5.6 x 3), which obviously is not very good and the government incurs losses on these loans.  It is interesting to note that low down payment loans with FICO scores above 680 (more than 50% of FHA’s recent origination numbers) perform better than all categories of loans with FICO scores below 680 (even loans w/ 10% down payments).

FHA loan performance continued to improve in each of its major indicators in May 2010.  Here are some of the highlights:

• FHA’s serious delinquency rate for its total portfolio ($860 billion) declined to the lowest level of the fiscal year (8.41%).
• Claims are still running about 30% below projected levels.
• FHA’s serious delinquency rate for loans insured in the last two years (June 2008 – May 2010) has fallen to the lowest level since September 2008.
• Probably even more important, the number of seriously delinquent loans has declined 18% since December 2009.
• FHA’s serious delinquency rate for loans insured in the last year (June 2009 – May 2010) has fallen to the lowest level since this analysis was introduced in December 2009.
• Even more encouraging, the number of seriously delinquent loans insured in the last year has declined 43% since December 2009.  
• In May, there were 13,091 seriously delinquent loans.  In December, there were 23,712 seriously delinquent loans.

 Better loan quality must be the key!   

• FHA’s average credit score is 698 in May 2010.
• It was 640 in 2007.
• 58% of FHA borrowers have credit scores over 680 in the first six months of FY 2010.
• FHA loans with credit scores above 680 (even with minimum down payments) perform better than loans with credit scores below 680 even if the loans have 10% down payments.
• In other words, high credit scores are at least the equivalent of a 10% down payment in the FHA program.  
• Less than 4% of FHA borrowers have credit scores under 620 in the first six months of FY 2010.
• FHA’s auditors expected at least 16% of FHA’s FY 2010 activity to have credit scores under 620.

 Seems encouraging.  Probably is.  One can wonder.  What’s next to get stymied?

 Only time will tell…