Premium Reduction Continues to Bolster FHA Loan Production

The Federal Housing Administration endorsed 102,800 loans in May, the second month in a row that endorsements passed 100,000.

The elevated FHA activity suggests continued interest in the government-backed market since the federal mortgage insurer reduced its annual mortgage insurance premium by 50 basis points in late January.

By contrast, the FHA endorsed just 66,300 single-family loans in January and 67,700 loans in December.

The latest FHA Production Report released earlier this month also shows that the agency received a total of 686,800 loan applications in February through May compared to 346,600 in the same period last year. (It generally takes 60 days from application to process and endorse an FHA loan.)

However, application activity dropped off toward the end of that four-month period, indicating the rush to refinance loans has waned. Applications in May decreased 10.5% from the previous month, to 156,950.

But another bright spot was an uptick in FHA loan applications for home purchases. In May, 64.5% of FHA applications were for purchases, compared with 47% in February.

“FHA has historically had a high purchase share, and high first-time homebuyer share,” said Joel Kan, the Mortgage Bankers Association’s associate vice president for surveys and analysis. “So if home purchases pick up as MBA’s forecast indicates, we could see more growth in FHA endorsements.”

The increased loan application activity and surge in loan originations in the FHA’s single-family program may beat the projections of an outside auditor, according to some analysts. The FHA’s annual actuarial report last November — which came out before the premium reduction was announced — projected that FHA would endorse just $124.5 billion in single-family loans in fiscal year 2015, which ends Sept. 30.

“At its present rate, FHA should endorse $190 billion of single-family loans or 50% more than projected in latest year’s audit,” said Brian Chappelle, a co-founder of Potomac Partners, in an update to clients.

Meanwhile, the rate of FHA loans that are seriously delinquent fell to 6.24% in May. “It is now at the lowest level since September 2008,” Chappelle said. “Particularly encouraging is the decline in the foreclosure rate to 2.04%. That is the lowest foreclosure rate since August 2009.”

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