Government-insured FHA loans accounted for 47.5 percent the financing for all of the homes closed in the Denver area in June, reports San Diego-based DataQuick.
To get a perspective on this, I turned to Peter Lansing, president of Universal Lending, and a sponsor of InsideRealEstateNews.com.
Universal Lending probably does more FHA-insured loans than any other lender in the Denver area. Even during the go-go days of so-called liar loans, subprime loans, and alt-A loans – remember those? – Lansing stuck to his knitting and stayed away from toxic loan products, which is one reason I jumped at the chance when he offered to sponsor my blog.
While I was on the phone with Peter, he looked up his loan volume for July. He did not have June figures broken out.
He found that 79 percent of his loans last month were for buyers, not refinances, which I’m thinking will be the subject of a future blog.
And he found that 75.4 percent of his loans were FHA-insured, and 4.8 percent were VA loans. So 80.2 percent of his loans were government-backed. Year-to-date, 65.6 percent were FHA loans and 9.9 percent were VA loans.
A couple of years ago, of course, everyone was getting a conventional loan. They were easy to qualify for, and they were less expensive than FHA-insured loans.
Lansing noted that Brian Chappelle, principal of Potomac Partners in Washington, D.C. said that Alt-A loans constituted 10 percent of Fannie Mae’s portfolio, but more than 40 percent of its losses. And while the average FICO score of the Alt-A borrower was 722, the default rate was so high because lenders did not have to verify their income and other metrics to make sure they are good borrowing prospects.
Part of the reason that FHA-insured loans are so popular, of course, is that it is lower-priced homes that are selling.
“That sounds like good data,” said Lou Barnes, principal of Boulder West Financial Services, when I told him about the DataQuick report. Nationally, a couple of years ago, when conventional loans were so easy to get, FHA-insured loans accounted for only 10 percent of all loan. "That is what everybody tells me, not just in Colorado, but everywhere, the lower-priced ranges are doing well."
Barnes said a friend in Bakersfield, Calif., told him that foreclosures are priced so below-market that “it is triggering bidding frenzies.”
But Barnes said it isn’t so much that buyers are hankering for FHA-insured loans, is rather it is almost the only lending game in town.
“To put FHA in context, other loans have disappeared,” Barnes said.
And, as best as he can tell, Fannie Mae and Freddie Mac are using the most stringent qualifications for lenders than ever in their history. They have the most stringent underwriting since he started in the business in 1978, and from what he has been able to ascertain from family members and others with a long history in the lending business, they have never been so tight with lending before.
I asked Lansing if he thought it was a good thing that people are turning toward FHA-insured loans.
“My answer to that is as long as you are using good credit analyis and lending with good lending practices, which means looking at four basic areas every time – down payments, good credit and good job history, money left over for emergencies, and good cash flow, meaning what percentage of gross earnings you’re spending on housing - whether is is an FHA loan or a conventional loan, is not important.”
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