WASHINGTON — Strong home sales are boosting originations of Federal Housing Administration loans and opening the door for first-time buyers. The strong loan volume could also portend the federal mortgage insurance agency is in line to receive a positive report from its auditors this fall.
The FHA endorsed 895,713 single-family loans during the first three quarters of fiscal year 2016, up 21.6% from the same period last year ending June 30, 2015. And most of the mortgages are home purchase loans.
The latest FHA Production Report shows lenders originated 622,757 purchase mortgages during the first three quarters of fiscal year 2016, compared to 486,139 purchase loans during the same period in FY 2015.
First-time buyers received roughly 82% of FHA purchase mortgages in both three-quarter time periods.
Meanwhile, the June FHA Performance Report shows a significant drop in the serious delinquency rate over the past four quarters. The percentage of loans 90 days or more past due fell to 5.02% as of June 30, down from 6.12% a year ago.
"It certainly looks positive for the 2016 actuarial review of the FHA mortgage insurance fund," said Brian Chappelle, a co-founder of the consulting firm Potomac Partners.
Independent auditors are expected to release the next actuarial report in November.
The results from last November's actuarial report showed the FHA's ratio of reserves to guaranteed loans exceeded its minimum 2% threshold for the first time since 2008. But the FHA fund reached its minimum capital ratio with the help of the agency's reverse mortgage program, which is an unreliable source of support and had a negative impact on the FHA fund in FY 2014.
FHA lenders are hoping the new actuarial report will top last year's 2.07% ratio, which might prompt Department of Housing and Urban Development officials to approve a reduction in FHA mortgage insurance premiums. In January 2015, the FHA reduced its 135-basis-point annual premium to 85 basis points.
Chappelle estimates FHA forward loan volume will be roughly $235 billion by the time fiscal year 2016 ends Sept. 30. That would top the independent auditors' projection of $169.8 billion in last year's actuarial report.
"The negative is the runoff volume," Chappelle said, which results from FHA borrowers refinancing into conventional loans. In the month of June, 111,000 FHA borrowers prepaid their loans and just 25,600 refinanced back into an FHA-insured mortgage.
"But it appears the increase in volume will make up for runoff, which is encouraging," said Chappelle, a former FHA official.
The wild card for any audit is the auditor's projections for interest rates, home price appreciation and other economic factors over the next 30 years. The FHA has no control over that.
But in terms of current trends, "it does look very positive from FHA's standpoint," Chappelle said.