|While the origination of loans insured by the Federal Housing Administration is expected to escalate this year, one market research firm is warning about growth being too rapid.
FHA loan production is forecasted to reach $400 billion this year, iEmergent reported in its 2009 FHA Market Forecast today. The total includes 1.4 million loans for $246 billion in FHA owner-occupied purchase transactions.
The outlook considered factors including significant changes to FHA lending programs last year and potential changes this year.
Government originations, including VA volume, reached an estimated $291 billion last year, Freddie Mac reported last week in its January 2009 Economic and Housing Market Outlook. Freddie projects government originations will reach $440 billion this year.
iEmergent warned, however, about risks associated with such rapid growth.
"While greater access to the FHA loan program is a positive for borrowers, especially first-time home buyers, its quick expansion and rapidly changing distribution patterns might be cause for alarm to some lenders," iEmergent founder and President Dennis Hedlund said in the report. "History has shown that whenever any loan product's popularity grows by a magnitude of five to eight times its normal trend in a short period of time, prudent oversight efforts -- such as increased FHA training, the close tracking of loan package submission and documentation quality, and the constant evaluation of loan data integrity -- is necessary."
Hedlund cautioned that an increase in early FHA defaults could lead to a contraction in government lending just as the importance of FHA financing has ballooned.
Mortgage Market Outlook Improves
Freddie Mac has lowered its projection for 30-year mortgage rates and increased its forecast for residential originations this year. The second quarter is looking especially good.