The Federal Housing Administration has lowered insurance premiums, and combined with increased refinancing opportunities and better access to loan purchases, lenders believe the FHA has an advantage in the marketplace. This is because the agency is geared to help reach out to first-time home purchasers and other individuals with low credit scores. This could not only boost the real estate market but also give the FHA the best chance when it comes to attracting this group of potential buyers.
In June, the FHA endorsed close to 80,000 mortgages. That’s a huge increase from February- a whopping 116 percent. The primary reason for this increase has to do with their decreased insurance premium, which went down by 50 basis points in January. According to the FHA, though, the drop also opened the door for many first-time home purchasers and other people in the market for a home with credit score issues. In general, loans to new homeowners have stayed the same over the course of this period at about 82 percent.
For borrowers with credit scores less than 720, the FHA is edging out the offerings of Fannie Mae and Freddie Mac. Individuals with credit scores about this still prefer to go the traditional route, but otherwise, borrowers are having the best luck with FHA.
Another benefit is that the FHA does not charge extra fees for having a low credit score. While Fannie Mae and Freddie Mac both use “loan level price adjustments” for borrowers with credit issues, the FHA has avoided this. Despite this change, the agency does still charge premiums higher than normal and requires a 3.5 percent down payment.
In the second quarter of 2015, Freddie Mac endorsed 172,000 mortgages, Fannie Mae endorsed 229,000, and the FHA endorsed 198,800. That means that the FHA is definitely gaining ground on the other two simply by making loans more accessible for those with credit problems. The premium reduction is largely to thank for this.
The move in general was expected to start a wave of refinancing and to help the FHA get traction in the mortgage market overall, the growth of the portfolio has come as a surprise to some. FHA volume has in some cases doubled, catching many in the industry off guard and not sure what this means for the future. This, combined with a general resurgence of the real estate market, is making it easier for the FHA to improve the share of purchase loans. Those individuals with a rental history but credit problems may be looking to use this time to jump into home ownership.