WASHINGTON — The Federal Housing Administration has been the "go to" lending program of choice for homebuyers — especially first-timers — for the past few years. But that may be changing because of tighter government credit standards and higher mortgage insurance premiums.

Last year, the FHA insured nearly 40% of all purchase mortgages, or roughly $200 billion, according to analysts at Keefe, Bruyette & Woods.

The latest government report showed the FHA endorsed only $8.3 billion in purchase mortgages in February, which represents 46,900 loans, down 36% from a year earlier. The FHA raised its annual premium by 25 basis points in October and another 25-basis-point rise goes into effect April 18. From Sept. 30 through February, lenders originated, on average, 61,400 FHA-insured loans per month, compared with 93,600 a month during the same five-month period a year earlier.

"Now that refinances are going away, it is going to expose the weakness of the purchase market," said Brian Chappelle of Potomac Partners in Washington. The mortgage banking consultant said that Fannie Mae, Freddie Mac and the FHA guaranteed 2.1 million purchase mortgages in 2009 and another 1.9 million in 2010.

"They are on pace to do a lot less in 2011 and that is truly troubling," Chappelle said.

Last week, the Census Bureau said new-home sales fell 17% in February to the lowest level since the government started tracking sales in 1968.

The National Association of Home Builders' chief economist, David Crowe, said that buyers are "reluctant" to get back into the market and the ones that are sometimes find it difficult to get a mortgage. "I hear from builders that buyers cannot get mortgages even with solid credit scores and down payments," Crowe said.

Publicly traded home builders raised concerns about tighter mortgage credit in many of their fourth-quarter securities filings. They said lenders are "demanding more stringent documentation, but in some cases higher FICO scores," KBW analysts said. The average credit score for a homebuyer taking out an FHA-insured mortgage in the fourth quarter of 2010 was 701, compared with 633 in the same quarter of 2008.

Federal Reserve Board Chairman Ben Bernanke recently told Congress that credit standards are tight. "Although mortgage rates are low and house prices have reached more affordable levels, many potential homebuyers are still finding mortgages difficult to obtain," Bernanke said.

Crowe is still optimistic about the economic recovery in the U.S., but is worried about a housing recovery. An economic recovery "usually lifts housing, but the mechanics aren't working this time," he said.

It is assumed the mortgage market is working properly because the government is making credit available, according to Chappelle.

However, lenders have repurchased billions of dollars of mortgages because of shoddy underwriting and servicers are facing $20 billion or more in fines for faulty foreclosure practices. These negatives have prompted lenders to impose higher underwriting standards than Fannie, Freddie and the FHA require. Chappelle said that these credit "overlays" are designed to protect lenders from loan buyback and servicing risks.

"Overlays are the big difference in this recovery. We never had that before," he said. "As a result, you have a sputtering housing recovery at best."

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