Volumes of FHA loans and VA loans are predicted to increase, causing growth in lenders’ portfolio, by majority of mortgage servicing professionals surveyed by Altisource Portfolio Solutions S.A.
This rise in FHA loans is confirmed by data gathered by FHA’s regulator, the Department of Housing and Urban Development for the year ended 2016 and most recently, the first quarter of 2017.
With the volume of FHA loans set to expand in the coming months, does this lead to a higher chance of delinquency among these loans?
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FHA Loans and Portfolio Growth
Altisource’s first Default Servicing Survey disclosed that 71% of surveyed professionals believe the volume of FHA/VA loans would grow in their respective organizations in the next year or so.
Forty-one (41%) of the respondents believe that FHA loans will lead the highest growth in their organizations’ portfolio for the same period.
The survey of mortgage services provider Altisource took into account responses of 205 professionals working in the mortgage default servicing industry, from June 22 to 29, 2017.
FHA Loans by Dollars, Loan Count
By dollar value, FHA loans for new home purchases took 17.4% share of the overall US mortgage market in 2016, up from 16.7% in 2015.
This means, FHA purchase loans worth $172 billion were originated in 2016 vis-a-vis the total market of purchase mortgages, including conventional and other government mortgages, of $990 billion.
The volume of FHA refinance loans did fall in 2016, to 9.0% from 10.6% in 2015. In dollars, FHA refinances accounted $81 billion of $901 billion of refinance loan originations in 2016.
Overall, the share of FHA loans (both purchase + refinance) was 13.4% in 2016, from 13.9% in 2015. This share amounted to $253 billion relative to $1,891 billion of all loans originated in the U.S. in 2016.
As of the first quarter of 2017, FHA loans’ overall market share was 14.3% –16.3% for purchase loans and 11.5% for refinance loans.
There were 1,303,344 FHA loans originated in 2016, relative to 8,271,245 mortgage loans made throughout the year.
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FHA Loans and Delinquency
Altisource, citing HUD data, noted that FHA loans constituted 35% of loans with delinquency of 30+ days.
Given that FHA loans are projected to grow in the coming months, the potential for these loans to default also increases.
This “default” potential is brought up by 93% of the respondent mortgage professionals who believe that capabilities pertaining to mortgage default servicing are important to help their organizations manage their default portfolio.
For its part, the HUD is monitoring delinquency of loans insured by the FHA and is aiming at early delinquency intervention to prevent or mitigate losses to its MMI Fund.
The health of the Fund ensures that more homebuyers can take advantage of affordable mortgage credit offered with the government’s backing.
Among the HUD’s goals and milestones for 2016 is a strategy that will help model or predict a borrower’s behavior like bankruptcy, default or delinquency. Testing of this strategy is scheduled for completion in the spring of 2017.
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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.
