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Origination News | Lender Ranking | Fundings by Lender | Statistics
Quarterly residential mortgage production by lender. Subprime, Alt-A, home equity and conforming originations. Volume by quarter since 2003.

FHA Production Grows

Solid activity amid overall market slowdown

November 7, 2006


While fewer FHA-insured mortgages were funded during the most recent fiscal year, higher balances pushed the dollar volume higher. The activity contrasts that of the overall mortgage market.

The Federal Housing Authority experienced a 10% decline in single-family loans in fiscal year 2006 from fiscal 2005 but saw a 17% increase in the dollar value of its loans, a Department of Housing and Urban Development spokesman told The dollar increase indicates FHA's market share has stabilized.

A year earlier, FHA single-family loan originations had fallen 44% from fiscal 2004's numbers, the spokesman noted. The stabilization was attributed to the implementation of administrative changes that align the FHA's practices with conventional lending practices.

The Mortgage Bankers Association's chief residential economist, Mike Fratantoni, agreed with the HUD assessment. "They seem to be stabilizing," he said.

But the latest FHA figures are even more meaningful when compared with total loan originations, he explained. "It's important to see the FHA's figures in the context of the overall market."

Fratantoni pointed out that overall mortgage production totaled $721 billion in the second quarter of 2006, a 10% drop from the $800 billion of loans originated in the second quarter of 2005.

But the dollar amount of FHA loans, according to HUD's figures, increased almost 17% to $72.8 billion in fiscal 2006 from $62.3 billion in fiscal 2005.

The actual number of FHA loans fell to 501,984 in fiscal 2006 from 555,557 in the preceding fiscal year, a decline of almost 10%.

But the number of total originations in the overall market also fell, Fratantoni said.

In the first half of 2006, according to the MBA's Mortgage Originations Survey, total first mortgage originations decreased by 16 percent, purchase mortgage volume fell 10% and refinance volume fell 22% when compared to the second half of 2005.

However, John Councilman, Federal Housing Chair for the National Association of Mortgage Brokers, was less impressed with the almost 17% increase in dollar volume.

"The increase in dollar volume is easily explained by slightly increased loan limits and more expensive homes over the [2005 to 2006] time period," said Councilman, president of AMC Mortgage Corp., Fallston, Md.

Besides, he adds, the FHA's mission is not to increase its dollar volume but to help the largest number of underserved borrowers obtain home loans. And to fulfill this mandate, the FHA, he stressed, "needs legislation to make certain important changes, such as risk-based pricing and loan-to-value adjustments."

The MBA's Fratantoni also said that, despite the improved numbers, FHA still needs the legislation that has been stalled in Congress if it is ever to regain the market share it has lost.

"Our government affair folks are hopeful the FHA reform package can get through Congress after the election," he said. "It's questionable whether the FHA could get back their past market share without that legislation."

Jerry DeMuth is an award winning journalist who has been reporting for four decades.

e-mail Jerry at [email protected]

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