Magazine article American Banker

FHA Losing Customers Rapidly as Premiums Spur Refinancing

Magazine article American Banker

FHA Losing Customers Rapidly as Premiums Spur Refinancing

Article excerpt

Byline: Brian Collins

WASHINGTON -- The Federal Housing Administration's financial health is benefiting from continued reductions in delinquencies and foreclosures, but the FHA is also losing some of its best customers at a very fast clip.

The "serious" delinquency rate (90 days or more past due) on FHA-insured home loans dropped to 4.28% in the third quarter of fiscal year 2017, according to an FHA quarterly report delivered to Congress late last month. That was down from 5% in a year earlier, and nearly 10% in 2011. The FHA is also enjoying a sharp decline in total claim and loss mitigation expenses. FHA paid $2.3 billion in total claims expenses in the third quarter, compared to $4.5 billion a year ago.

But at the same time, more FHA homeowners than expected are refinancing out of the program and into conventional mortgages, despite an increase in mortgage rates over the past year.

The latest data shows that 761,100 FHA borrowers had refinanced over the first three quarters of in fiscal year 2017, as of June 30. That is 125% above what FHA auditors had predicted for the entire fiscal year in last year's FHA actuarial report. (The fiscal year ended Sept. 30.)

More borrowers are leaving the FHA likely because of the annual premium they must pay for government insurance over the life of the loan. Private mortgage insurance on conventional mortgages can be cancelled once the homeowner reaches the 20% equity mark. But the only way homeowners can cancel their FHA mortgage insurance is to refinance into a Fannie Mae or Freddie Mac conventional loan. …

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