News by Subject
Complete list of specialty news sections.

Mortgage Advertising
Reach mortgage executives, loan originators and other people tied to mortgage industry.

Mortgage Industry News
Subscription-based news for people who work in real estate finance.

Mortgage Newsletter
Free e-mail newsletter with the latest headlines from

Mortgage News Reprints
Put entire stories in your online or printed newsletter or publication.

Mortgage Feedget RSS code
Condensed stories for your web site or for your RSS reader.

News Archives
Archive of news entries.

Mortgage Statistics
Data and statistics for real estate finance.

Mortgage Graphs
Directory of lenders, branch operators and mortgage service providers.
home advertise email RSS about us
HOT Topics Rates Glossary LO License Search
Consumer Mortgage News
Free mortgage news for current and prospective borrowers from a leading online mortgage industry news publication.

The ABCs of FHA Mortgages

How FHA loans differ from conventional mortgages

March 29, 2016

By SAM GARCIA Mortgage Daily

portrait of Sam Garcia

One of the financing options for homebuyers looking to purchase a house is an FHA loan. But many consumers might not have a clear understanding of what an FHA loan is.

'FHA" are the initials for the Federal Housing Administration. The government agency is part of the Department of Housing and Urban Development.

What FHA Does
FHA doesn't make loans. It's not a lender.

Instead, FHA insures home loans that are made by home lenders like Wells Fargo & Co., JPMorgan Chase & Co. and Quicken Loans Inc.

Basically, FHA provides mortgage insurance that pays out claims when borrowers default and the lender suffers a loss as a result.

FHA lenders, also known as mortgagees, earn fees when the loan is originally closed. If they keep the loan in their investment portfolio, they continue to earn interest each year the loan is outstanding.

Some FHA lenders sell their interests in FHA loans by placing them into mortgage-backed securities that are guaranteed by government-owned Ginnie Mae. This process is called securitization

When FHA loans are securitized, the original lender often continues to collect the payments then passes them on to MBS investors. In this "servicer" role, lenders earn somewhere between a quarter percent and half percent a year based on the loan's balance.

FHA loans, mortgages that are guaranteed by the Department of Veterans Affairs and loans backed by the U.S. Department of Agriculture are considered "government" programs. If a home loan isn't FHA, VA or USDA -- then it is conventional. A majority of mortgages are conventional loans.

FHA competes with private mortgage insurance companies like MGIC, Radian and United Guaranty -- companies that insure conventional loans when the borrower makes less than a 20 percent downpayment.

In addition to insuring mortgages secured by single-family homes, FHA also insures loans used to finance apartment buildings, nursing homes and hospitals.

The FHA Advantage
FHA programs are appealing because they require lower downpayments, have better interest rates and are more flexible with guidelines.

Homebuyers can purchase a property with a little as 3 percent down using an FHA loan.

Interest rates on FHA-insured single-family loans are lower than on conventional loans. In February, FHA rates averaged 4.17 percent -- less than the 4.29 percent average on conventional mortgages -- according to mortgage technology provider Ellie Mae Inc.

Many borrowers with imperfect credit or low credit scores turn to FHA -- which is more lenient in its guidelines than conventional lenders are.

FHA was the only option for many consumers shortly after the financial crisis, when only the best borrowers were approved for conventional loans.

FHA Higher Risk
But looser lending standards mean that a bigger share of FHA borrowers are eventually unable to make on-time payments than conventional borrowers.

The delinquency rate on FHA loans is nearly double the rate for all mortgages.

For example, although just 6.39 percent of all borrowers on all home loans were past due at least 30 days or in foreclosure as of Jan. 31 according to Black Knight Financial Services, the rate of 30-day delinquency on FHA mortgages was 12.67 percent.

Sam Garcia founded Mortgage Daily in 1998 and became its full-time publisher in 2000. Prior to his news career he worked in mortgage lending for two decades.


next story

back to home page

Refinance News
News about refinance programs, pricing and production.
H A R P 2.0 News
News stories about the H o m e Affordable Refinance Program including expanded program guidelines.

Copyright © 2016 Subsribers Only:

AMC directory

ARM indexes

mortgage company directory

mortgage regulations

net branch directory

pricing engine directory

wholesale lender directory

More Mortgage News Resources ( full site map):

advertising news

appraisal news

bank news

biggest lenders

commercial mortgage news

corporate mortgage news

credit news

FHA news

financial regulation news

foreclosure news

free mortgage news

GSE news

jumbo mortgage news

interest rates

loan modification news

loan originator survey

LOS Newsletter


mortgage associations

mortgage-backed securities

mortgage books

mortgage brokers

mortgage compliance

mortgage conferences

mortgage directories

mortgage education

mortgage employment

mortgage employment index

mortgage executives

mortgage fraud

mortgage fraud blog

mortgage fraud local news

Mortgage Fraud Index

Mortgage Graveyard

mortgage insurance news

mortgage lawsuits

mortgage leads

mortgage lender ranking

mortgage licenses

mortgage litigation

Mortgage Litigation Index

Mortgage Market Index

mortgage mergers

mortgage news

mortgage politics

mortgage press releases

mortgage production

mortgage public relations

mortgage rates

mortgage servicing

mortgage statistics

mortgage technology

mortgage video

mortgage Webinars

net branch

net branch directory

nonprime news

origination news

originator tools

refinance news

reverse mortgage news

sales blog

secondary marketing

servicing news

subprime news

wholesale lenders

wireless mortgage news