NY Times: FHA Relying on Newest Loans to Drive Financial Recovery

Despite current speculations surrounding the Federal Housing Administration’s (FHA) negative capital position, recovery efforts might lie in the performance of more recent loans, according to a recent article from the New York Times. 

Citing “toxic loans” insured between 2007 and 2009 as the source of FHA’s current woes, NY Times writes that the performance of loans insured since 2010 has sparked confidence among agency officials in mitigating losses brought on by FHA’s Mutual Mortgage Insurance Fund. 

The NY Times writes:

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Loans insured since 2010 are performing well, according to the agency. The main reason is that it is essentially catering to a better class of homeowner. In 2008, a quarter of all the loans it insured were made to borrowers with credit scores below 600. (A score of 850 is the highest possible.) In 2010, that figure was 2 percent.

In an interview on Friday, Carol J. Galante, the acting commissioner of the F.H.A., said that initial data from recent loans, like that for early payment defaults, is showing far superior results over older loans. “We see dramatic improvement that gives us some level of confidence that they are certainly performing much, much better than the older books of business,” she said. Ms. Galante added that higher credit scores also pointed to fewer losses on newer loans. 

The F.H.A also predicts that the years ahead will bring fewer losses because the larger loans that it began insuring in 2008 are better performers. The agency insures loans of up to $729,750, well above the $417,000 cap on mortgages guaranteed or bought by Fannie Mae and Freddie Mac. 

Whether these loans continue to perform well is another question, given that many are not yet seasoned.

The downside to officials’ confidence, the article notes, is that it may take three to five years for loans to “season” and for loss patterns to emerge.

Read the full article here. 

Written by Jason Oliva

 

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  • Little above relates to the HECMs in the MMI Fund since all of those HECMs were endorsed after September 30, 2008.  While the information MAY explain what happened in the FHA forward market, the information above shows that HECMs have a much different impact on FHA than forward mortgages.

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